US Bancorp and Subsidiaries Upgraded due to Impressive Performance

Standard & Poor’s (S&P) has raised its long-term issuer credit rating on US Bancorp (USB) to A+ from A and its issuer credit ratings on the bank’s operating subsidiaries, US Bank National Association, US Bank National, ND, and Elavon Financial Services to AA-/A-1+ from A+/A-1. The stand-alone credit profile (SACP) at the operating level remains a+ because the upgrade is based on an additional notch to the issuer credit rating. Given that USB’s SACP has not changed, S&P’s ratings on USB’s preferred stock and hybrids also remain unchanged.

“The upgrade reflects USB’s sustained outperformance versus peers over the past four years, which the stability in its revenue and earnings during and after the financial crisis demonstrate,” said S&P credit analyst Stuart Plesser. “Additionally, the company maintains risk aversion in terms of acquisitions.” In December, S&P’s expectation was for continued home price declines, which could have dampened USB’s credit quality and resulted in higher net charge-offs (NCOs). The credit ratings agency’s (CRA) revised expectation is that housing prices are nearing a bottom. As such, it believes that USB’s outperformance compared with peers will continue.

“Positively, USB’s total NCOs have declined for the last nine quarters,” said Plesser. Given the decline in delinquencies and criticised assets in Q212, S&P believes NCOs will continue to decrease, at least through the remainder of the year. In addition, USB’s provisions for mortgage representation and warranties liability (reps and warranties) have stabilised.

Specifically, USB’s reserves at the end of Q212 totalled US$216m, versus US$160m at the end of 2011. Provisions for the reserve totalled US$45m, down from US$67m in Q112. S&P expects USB’s provisions for reps and warranties to remain at US$45m or below for the remainder of the year and into 2013. USB has no exposure to private-label securitisation putbacks. Its litigation exposure is minimal, as is its direct exposure to Europe.


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