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U.S. Bancorp’s (
- Analyst Report
lead bank, U.S. Bank, is buying FSV Payment Systems, a Florida-based prepaid card processing company. The deal is likely to be accomplished in December but is currently subject to regulatory approval.
Following the closure of the deal, FSV will operate under U.S. Bank’s Elan Financial Services brand. The deal terms were, however, not made public.
A Strategic Fit
The deal is a strategic fit for U.S. Bancorp’s banking unit as it will strengthen its position in the prepaid market, which has been the company’s priority over the last decade. A reputed organization in the prepaid card market, FSV both manages and processes its own programs. Further, the company enjoys a leading position in many domains, including business-to-business and direct-to-consumer services.
Therefore, the combined entity, which will capitalize on U.S. Bank’s payments strength and prepaid expertise, will be well positioned to provide efficient end-to-end prepaid programs and services to its clients.
Earlier in November, in an effort to augment its securities services business, U.S. Bancorp’s subsidiary -- U.S. Bancorp Fund Services, LLC -- announced its plan to acquire AIS Fund Administration, which offers fund administration and related services to alternative investment managers. The deal will add about $25 billion in hedge fund assets under administration to the U.S. Bancorp subsidiary.
As a matter of fact, 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.
In addition to strengthening its existing fee-based operations to generate long-term revenue growth, U.S. Bancorp announced several payment and trust-related acquisitions during the past year. This includes a portfolio of approximately $700 million of credit card assets, the institutional trust business of Union Bank, a unit of UnionBanCal Corporation of San Francisco. Notably, UnionBanCal is a subsidiary of Mitsubishi UFJ Financial Group Inc. ( MTU - Analyst Report ) .
Further, it comprises the Indiana corporate trust business of UMB Bank N.A., a unit of UMB Financial Corp. ( UMBF - Snapshot Report ) . The company expects additional opportunities in payments and corporate trust in the upcoming years.
In total, during the downturn, the company acquired over $3.2 billion in card assets and $1.1 trillion in trust assets under administration. This diversification in business is expected to continue to help maintain growth in an otherwise unfavorable operating environment.
U.S. Bancorp currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We believe such opportunistic acquisitions will be appropriate for the company and will help boost shareholders’ confidence, which might lead to positive estimate revisions. This, in turn, could trigger an improvement in the Zacks Rank.
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