U. S. Bancorp on Acquisition Spree

U.S.Bancorp (USB - Analyst Report) is on an acquisition spree. In an effort to expand its trust business, the company’s lead bank, U.S. Bank National Association, has agreed to acquire the Indiana corporate trust business of UMB Bank, a subsidiary of UMB Financial Corporation (UMBF - Snapshot Report).

The deal is expected to be accomplished on March 2, 2012. However, the terms of the agreement were not disclosed by the company. To ensure a faultless transition, the U.S. Bank Global Corporate Trust Services team will work in collaboration with the Indiana representatives of UMB Bank.

With more than $4 trillion in assets under administration in municipal, corporate, asset-backed and international bonds, U.S. Bank Global Corporate Trust Services is one of the largest providers of trustee services.

Acquisitions

Last Friday, through its lead bank, U.S. Bancorp acquired the banking operations of BankEast, a subsidiary of BankEast Corporation, in a deal assisted by the Federal Deposit Insurance Corporation (FDIC). BankEast is based in Knoxville, Tennessee.  

In early 2011, U.S. Bank completed the purchase of Bank of America Corp.’s (BAC - Analyst Report) U.S. and Europe-based securitization trust administration businesses. This transaction included $1.1 trillion of assets under administration and provided U.S. Bank with approximately $8 billion of deposits during its closure.

The acquisition strengthened U.S. Bancorp’s position as a leader in the structured finance trust business and posed as a great complement to its corporate and municipal trust business. Moreover, the acquisition provided the bank with a prospect of expanding its presence in the European market with offices in Ireland and London.

In 2011, U.S. Bancorp acquired the banking operations of First Community Bank (New Mexico), a subsidiary of First State Bancorporation, in an FDIC-assisted deal. Given its asset base, First Community Bank was New Mexico’s third-largest bank. The deal added 35 New Mexico and 3 Arizona branches together with over 50,000 new deposit customers.

Our Take

U.S. Bancorp has a well-balanced business model, with non-interest revenue representing nearly half of its total revenue. Its results have been driven by a combination of acquisitions and organic growth. Also, we expect continued investments in core banking and fee-based operations to generate long-term revenue growth.

Going forward, we expect U.S. Bancorp to benefit from its diversified revenue base and strategic acquisitions, thereby posting growth in core earnings going forward. Yet, a sluggish economic recovery and low interest rate environment along with regulatory issues remain our concern.

U.S. Bancorp shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation.

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