After reporting a quarterly profit of $1.4 billion, which disappointed some investors, U.S. Bancorp (NYSE:USB)‘s management team walked investors through the bank’s various segments and answered several questions.
While U.S. Bancorp’s management team doesn’t receive the same level of press as the executives at the major Wall Street banks, CEO Richard Davis offers some fantastic insight regarding where he sees opportunity in the banking environment and what it means for investors.
On too big to fail
“I am worried that too big to fail is just introducing the idea that we need so many different ways to protect the banks that we will become so risk-free that we will end up losing our benefits to those of you who invest in us.”
While Davis admitted that the banking sector as a whole “failed” because it has caused various bodies to question its strength, he mentioned his concerns that too much regulation and focus on capital buffers might ultimately harm banks’ ability to compete. At the core of banking, risks must be taken, and if there is too much conservatism, investors will suffer.
On why businesses aren’t spending
“You’ve got the interest rates being decidedly low for a long time, so there is no catalyst for a company to rush to make a decision because rates are eventually going to move up. They probably should be thinking that way, but based on the calculus and what the Fed has done, by tying it to unemployment everyone can see that it is not imminent.”
While the banking sector has undoubtedly shown improvement over the past several years, banks are still struggling with a tepid environment for loan demand. Davis attributed much of this activity to the lack of incentive for businesses to deploy cash when interest rates are expected to be depressed for the Fed for the foreseeable future.
On international expansion
“These are businesses that are fairly young, a few years old, but they are the kind that have the great growth curves so they are moving from red to pink to gray to black in terms of bottom line, and they have got great trajectories of growth. And that is probably something you will hear about in the future quarters which isn’t present in today’s run rate.”