U.S. Bancorp's efforts to bulk up in several of its markets got off to a rousing start with the acquisition of two failed California thrifts.
By scooping up the thrift operations of Downey Financial Corp. in Newport Beach and PFF Bancorp Inc. in Rancho Cucamonga on Friday, the Minneapolis company added more than 200 branches and $12 billion of deposits in California. It now has the No. 6 deposit share and the No. 4 retail banking network there, with 561 branches. Before the acquisitions it was No. 8 in deposit share and No. 5 in branches.
Joseph Otting, U.S. Bancorp's vice chairman and senior officer of West Coast operations, said in an interview Monday that the $247 billion-asset company is also eyeing opportunities in Oregon, Washington, Nevada, Arizona, Tennessee, and the Chicago area.
He said size would have little to do with buying decisions. "It has more to do with how does it fit into our geographic footprint, and what benefit it brings to the company, more than size."
In recent years U.S. Bancorp has shied away from large deals, saying it preferred to control costs and grow at a modest rate. But Richard K. Davis, its chairman and chief executive, said this month that the rapidly changing banking landscape has whetted his appetite for large-scale deals. His company had expressed interest in National City Corp., which is selling itself to PNC Financial Services Group Inc.
When U.S. Bancorp announced this month that it would receive $6.6 billion under the Treasury Department's Capital Purchase Program, Mr. Davis said the infusion would give his company new flexibility to "invest in future growth."
Andrew Marquardt, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said Monday that he expects U.S. Bancorp to be aggressive on the deal front. "Now is the time for them to be opportunistic."
But Mr. Otting emphasized that U.S. Bancorp is no hurry. "Our capital position and strong earnings give us the opportunity to look at lots of transactions, and we're going to be very disciplined around that process."
U.S. Bancorp had been planning for three years to bulk up in California, but high prices kept it from making more deals, he said.
It acquired the branches, deposits, and certain assets of the $12.8 billion-asset Downey and the $3.7 billion-asset PFF in what it called a "cashless transaction." U.S. Bancorp agreed to take on about $1.6 billion of the companies' initial losses, with any losses after that to be shared with the Federal Deposit Insurance Corp.
Even before Downey and PFF — victims of the steep downturn in the real estate markets — were seized by regulators, both had been "on our radar screen" as desirable targets, Mr. Otting said.
U.S. Bancorp has no plans to close any branches, he said. "This is a growth opportunity for us, not a market consolidation opportunity. This not only strengthens our base closer to metro Los Angeles, but brings us significant new geographic territories."
It added roughly $2.7 billion of deposits in Southern California this year when it bought Mellon 1st Business Bank of California, a $3.4 billion-asset Los Angeles subsidiary of Bank of New York Mellon Corp.
Two large rivals also have struck deals of late to beef up in California. JPMorgan Chase & Co. took over the failed Washington Mutual Inc.'s banking operation, and Wells Fargo & Co. is acquiring Wachovia Corp. But Mr. Otting said U.S. Bancorp did not look to buy in California to keep up with its competitors, but to capitalize on its expertise there. He has 20 years of experience in California, and other key executives have ties to the market, including Mr. Davis, who was raised in the Los Angeles area.
The company mobilized a group of "ambassadors" from around the country and had one at each Downey and PFF branch Saturday morning to greet employees, Mr. Otting said. Those ambassadors are still at the branches this week answering questions.
In addition, U.S. Bancorp gathered its new employees at local conference centers Sunday to offer an overview of the company and talk about the transition, Mr. Otting said.
The employees, who had been anxious since their companies ran into trouble, welcomed the opportunity to become part of a stronger company, he said. "The employees stood up and clapped at the end of the events."
