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Wednesday, January 18, 2012

USB Drops on Valuation Stretch? (NYSE: USB) (NYSE: BBT)

NEW YORK - U.S. Bancorp, known as the bank that does everything to maintain its precious ratios reported today. The bank made $1.35 billion or 69 cents a share as the stock initially surged to around its 52 week high but investors lost their excitement on a second look at earnings. Earnings included a 5 cent gain from a litigation law suit after netting extra mortgage charges.

U.S. Bancorp continued to have industry leading Return on Equity (ROE) of 16.8 percent, Return on Tangible Equity (ROTE) of 22.2% and Return on Assets (ROA) of 1.62%. However the company continues to have much higher leverage than fellow premium banking peers, Wells Fargo and PNC Financial. USB had just 6.6% tangible equity to tangible assets this compares to 7.5% of Wells Fargo and 8.7% of PNC. The lower the number, the more leverage of the bank and the higher returns that obviously can be achieved. Wells could add another 4% points to its return and PNC another 6% with the same leverage as USB. Meaning pound for pound USB operates at similar to below the other premium banks.

USB said loans only grew by $5 billion much lower than the percent increase of PNC and above that of Wells Fargo. USB's stock is down on the day as it still trades at the most premium price among U.S. Banks save the anomaly in BB&T shares which trade at a premium which can't continue.

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