US Bancorp 4Q16 Earnings Call Notes

posted in: Notes | 0

U.S. Bancorp’s (USB) CEO Richard Davis on Q4 2016 Results

Richard Davis transitioning

“You know, I hit my 10 year anniversary as the CEO of the bank last month and many years before that I conferred with the board and our senior leaders and told them that I had a couple of thoughts that attended to that notion, that at 10 years I think it’s the right time for a transition. I think that’s for any company of any type and it seem that we are about three years away.”

The right way to do a transition

“Marty, you nailed it, that’s exactly why the transition is we think best practice because it affords me chance to work with the board and make sure that Andy is got the time and energy to work with the management team and to work on the issues. I will not be in the day-to-day management of the company because that’s also a best practices to stay out of running the company, but to help him with the board side of it. And I’ll be an ambassador of company, I’ll do whatever he needs me to do, I can go places for him if he needs me to. I am not going to go on TV a lot, I am not going to talk about as the ex-U.S. Bank CEO, I am not going to do that because the voice has to be his and the current management team. ”

We’re planning for two rate hikes, June and December

“And Ricky, they are not equal because if we get the June one, another December, we’re there. We get the December and not the June much harder. So – and I know there is a lot of work out [ph] that have a June, September, December, we’re just using June, December projections right now.”

Financial services probably not top of the admin’s list starting off. We’re going to do a lot of the stuff anyways

“The answer is yes. I wouldn’t be this year and I’ll say I’m going to be prognosticator here. But based on what I understand, the administration that’s going to take office in a few days. The number one issues are health care reform, taxes and infrastructure and somewhere in the top five might be financial services, but it’s not the top three, a lot of financial services issues I think will be dealt with in the early part of the year but with some implications later. So that’s why I said earlier on DOL for instance, as we never made a bet on whether something would happen that would cause us to need to slow down because we want to be ready. We would do it anyway. So I think Erika the best thinking is that the understanding of what implications and lower regulation might happen will be known probably in the second half of the year and benefited in sometime in ’18, but I’ll also tell you but for things like an unusual consent order or an event like DOL transition, I think this bank has peaked on those costs.”

Compliance personnel not going back to where it was

“Our compliance costs in the entire company are now in terms of FTE, they are over 7000 people of our 70,000 and that’s up more than twice what it was a few years ago. That’s a little high because of these issues I just mentioned, but it’s not going to go back to where it was, it’s going to stay much higher because that’s the cost of running a high-quality bank.”

I have another calling in life

“I indicated that Andy is the perfect candidate, he is sitting right here next to me, lets give him the signal, lets give him the time table and lets keep them. And thirdly, I do have another calling in life to do something entirely different, which I don’t know what it is because I never felt permitted to look until the amount was passed and today will be my first day look into the future, along with my wife, but a very strong view that we want one more thing in life to accomplish and its going to be entirely outside the banking industry. So that’s the reason and the rumors of my bad health or early demise are greatly exaggerated, I feel quite good today”

We’re disappointed that there’s optimism but no action yet

“Economy being better is actually trumps all of that, a really good economy, reflection of what our customers feel and when that economy kicks and we hope it does that’ll be more important than anything. But were disappointed as you might be to hear it, we are like canaries at mind, we can see balance sheets, we can see customer behavior, optimism is high, but actions are not present yet. So we’re going to wait and see on that on. And then tax reform might at a big one that benefits us and our customers, as I said earlier, based on my understanding of the budget process it’s probably going to be a late year issue.”

Davis’ last comments

“And this is my last call, 41 of them. So I just want to tell you guys how much I appreciate as a class of investors and analysts you had been fair and thoughtful and balanced and you treated this company very well and I appreciate that very much.”…

“So to end an sport note because that’s how I try to think of my life, this is rather like a great relay race and we’re on the backside of track and Andy and I are running together now because he’s about to pick up the baton, he is got the perfect cadence, I’ve got the perfect speed. Our hands come together, the baton hands off and we’re off to another race and that exactly how you see it.”

Andy Cecere

A lot of optimism but not a lot of action still

“John, I’ll start and then I’ll hand it to Bill for a little bit more detail. So first I will tell you that there’s more optimism and positive commentary for a lot of our business customers. But we haven’t seen a significant change in utilization or actually take down of credit yet. So while the talk is there, the actual action is not yet shown itself. We do see a steady growth in middle market, small business, and a higher corporate loan growth, and auto is strong as is the mortgage activity. But again, because re-financings are down we will expect that to diminish. But again, the key point I would make is, we’re not seeing huge changes. In fact, it’s relatively flat in terms of the overall utilization rate”

P.W. Parker

Commercial real estate is late stage

Yes, what is Andy is referring there is commercial real estate, we do see some of those markets as being sort of late stage credit cycle. If you look back, we had fairly robust growth in our construction, real estate construction book and that’s slowing now, its even slowing with you know our client base, they are being more cautious. Multifamily is an area that if you look at the forecast, there are forecast, its pretty broad-based of potential rent declines in a lot of the major cities.

Terry Dolan

Would expect half or 60% of tax break to go to bottom line

“But to keep it simple, if we saw a tax – a corporate tax rate decline of 10%, we would expect our effective tax rate to benefit or go down by about half of that or about 60% of that. So think about five percentage points to 6 percentage points in that range, that’s essentially what we would expect to see the change in our effective tax rate and its because of the various dynamics associated with how tax credits work.”

Tax is really probably more of a late 17, 18 issue

“By the way, I am going to a tax benefits unless you guys know something I don’t, it’s really has to go with the budget process. So this is probably more a late ’17, ’18 issue, much as we all want to be immediate. And I think that’s one of the reasons customers were also a customer of others are holding back on some final decision. So we see what and when things happen in taxes is one of them.”