USB to Acquire a Part of BB&T

U.S. Bancorp (USB - Analyst Report) has signed a deal with BB&T Corp. (BBT - Analyst Report) to acquire the latter’s banking operations in Nevada . As per the agreement, U.S. Bank National Association, U.S. Bancorp’s lead bank, will purchase about $800 million in deposits and certain branches of BB&T’s Nevada banking operations.
 
The deal is subject to regulatory approval and is expected to close in early 2010. The acquisition involves deposits of those branches that BB&T had recently acquired from the Federal Deposit Insurance Corporation (FDIC) as receiver for Colonial Bank. 

The purchase will fortify U.S. Bancorp’s business in Nevada . The company expects this acquisition to meet or exceed the company’s internal rate of return and earnings per share accretion targets. 

Last week, US Bancorp has announced that its lead bank, U.S. Bank, has agreed to buy the bond trustee business of First Citizens Bank, a subsidiary of First Citizens BancShares Inc. (FCNCA). The purchase aids growth of its corporate banking and fixed income business in the southeast market. Also it complements the bank’s existing bond trustee business in North Carolina , South Carolina and Virginia .
 
Earlier that week, US Bancorp also announced its acquisition of the mutual fund administration and accounting servicing division of Fiduciary Management Inc. While this acquisition will confer additional compliance, technology and accounting talent for U.S. Bancorp Fund Services, the company will also benefit from contact with Fiduciary Management’s key client base. 

With $266 billion in assets, US Bancorp is the sixth largest commercial bank in the United States . Despite the fact that the company’s second quarter earnings reflected the deteriorating credit quality and its earnings of 12 cents per share were a penny short of the Zacks Consensus Estimate, we have been encouraged by the company’s exit from the Treasury’s Capital Purchase program. 

Although the stressed residential real estate market and the issues with the company’s commercial and retail customers will continue to weigh on the shares of US Bancorp, we believe that the recent signs of economic recovery coupled with such strategic acquisitions bode well. 

Hence, prior to its third quarter earnings release scheduled on Oct 21, 2009, we have a Neutral recommendation on the shares of US Bancorp.

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