US Bank 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

The new FHFA rules don’t really change the way we’ll be underwriting

“It really doesn’t. This is Richard. It’s a good sound bite, but I think the test comes in whether or not there’s a private market for investors to pick up these loans with lower or no down payment, and I’m not sure there will be.”

We’re not going to do a whole lot with this until we watch from the sidelines for a bit

“we like very much to feel more comfortable making loans with, I’d say, either a lower FICO or with less down payment. But unless we’re convinced that the rules are going to be permanent and there’s not going to be a look back or a reach back in future times, or that there won’t be a market for this, we’re simply going to stay on the sidelines in the concerns of both compliance risks and other uncertainties, and we’ll just continue to do what we’re doing now, which I think is sufficient for the near term.”

Litigation risk is a new kind of uncertainty

“when you think about all the risks we have, credit risk, we can manage. We’ve done that through the whole cycle, and we did it well before. In terms of litigation risk, that’s kind of the new uncertainty.’

There’s a benefit to being the last to speak

“I have this great visibility and clarity I’ve never had before and what the other banks have been saying. And so, I’m going to say, we’re generally positive about loan growth,”

Seeing strength in loan demand

“We’re seeing people continue to support capital expenditures, particularly in large ticket leasing and in corporate banking. We’re seeing the pipeline across all energy — industries stronger as the year ages, which is pretty positive. We’re also seeing the leverage portion of the market remains pretty fast-growing, but we don’t participate much in that and there’s a regulatory oversight that’s more heavy at this point in time, and so it doesn’t affect us near as much. And then a strong market, bond market is still strong. So that does take some of the loan volume away. But overall, we don’t see anything less than we’ve seen in the last couple of quarters. Commercial real estate, still pretty strong. ”

Consumers starting to borrow

“What you’ll seen in the last few quarter will be very much the same, dominated by C&I, but started — consumers starting to vie for its position now. Quarter 4 will be strong consumer with credit card, but will still be heavily mixed toward C&I, which will still put some pressure on NIM.”

Apple pay is really tokenization plus biometrics

“at the end of the day, this tokenization is going to give us all the protections we’re seeking. If you think of the Apple Pay, that’s tokenization plus biometrics, which allows for a different kind of protection, and there’ll be all kinds of combinations. ”

We do assume deposits will flow out when QE ends

“we do assume that at end of QE or when rates start to rise, we do assume an outflow of deposits. That’s part of our rate sensitivity analysis, and I do think the funding advantage will become more explicit and clear when that occurs. It’s there now because we still have some debt on the books and I think that advantage shows itself, but it will show itself more as more debt replaces deposits as rates move up.”

We’re looking forward to the moment when rates move up

“we’re looking forward to the moment when I think when rates move up, it’s less a proxy for the fact that we’re poised to do better when rates move up. It means that the economy is doing better, and we get way more benefit out of that. And so for me, it’s approximately when the economy starts to turn up.”

We have a better debt rating than everyone else

“I think when I was talking about our pricing advantages, everyone on the call rightfully jumps to Wholesale Banking and thinks about the advantages we have on cost of funds, based on our highest debt ratings, and that transcends into better rates and competitive issues on adjustable rate.”

We have an advantage over every other bank whenever we have to issue debt

“when we go in to market, if we have to issue any kind of a debt, we have an advantage to every other bank. And whatever that time period is and however much that raise was, we have that much delta to offer up. And as I said earlier, it could be the wholesale. It could even be the consumer businesses, and there’s a net positive. But here’s the trick, you only use it on the highest in quality customers, because otherwise, you’re starting to dip down into things with loan losses and compliance costs and things you may not really understand.”

We’re part of the problem pushing price against competitors

“I’d expect you’ll hear on other calls that the pricing competitiveness is still high and pretty peaked. You haven’t heard that here because we’re either a part of the problem or we choose to use our funding advantage to be more competitive on price, not on underwriting.”

I think the stock market is a head fake

“I do think, and I’ve said this before, too, I think the stock market is a head fake, if people using that as a measure of the quality or the wealth of — the intention of consumers to start spending and acting. In fact, in some respects, the stronger the stock market, it’s because there’s nowhere else to put it. So I’m not changing my view that in ’15, things turn around quickly and start to take off, because when they do take off, I think it’s pretty likely they will be fast. And again, the pipelines that I’m talking about, the customer intentions I’m talking about, that’s what we’re waiting for: the final decision when rates start to move, which will create this, I think, tsunami effect of people acting quickly. I’m going to stick to what I said before, and I think it’s next year. And when it does, it happens fast. I don’t have any evidence that says otherwise, and I’m not responding to the vagaries of 2 weeks of either 10-year interest rates or stock market variances. I’m just going to stick with it.”