U.S. Bancorp CEO switch: 'Why now?' questions overshadow 'What's next'
Normally when a big company names a new CEO, the focus shifts to the rising star and the old boss quickly becomes, well, old news.
But on Wednesday, a day after U.S. Bancorp — the fifth-largest traditional banking company in the country — pulled the trigger on its CEO succession plan, elevating President Andy Cecere to CEO and keeping Richard Davis as chairman, there was one predominant question: Why did Davis decide to leave now?
Granted, Cecere had been the clear heir apparent for a while, but the timing of the decision caught many observers off guard. When exactly they thought he was going to depart after a decade as CEO was less clear, but to some folks it appeared to feel a little early.
Davis is younger than several of his big-bank-CEO peers. He's also at the top of his game in many ways, as head of one of the industry's most profitable banks and a widely sought-after commentator on economic policy. And while he has talked openly about his looming retirement and his desire to pursue other interests outside of banking, few viewed the move as imminent, and he acknowledged that the move might be a puzzler to some folks.
"I know it's odd to have a 58-year-old CEO leaving to go nowhere, but that's really what it is," Davis said Wednesday on a conference call that had been scheduled to discuss fourth-quarter results.
Davis sought to make the case in that call and media interviews that the timing was right for a leadership transition at the Minneapolis company.
Pressed during the conference call to explain his decision, Davis said that it is time for him to pursue "another calling" in life, though he's not sure yet what that means. "Rumors of my bad health or early demise are greatly exaggerated, because I feel quite good today."
Another factor is clear: The industry outlook has brightened significantly in the past few months, as it prepares for potentially lower tax rates and a lighter regulatory touch under President-elect Donald Trump. The rapid change in outlook played a key role in prompting the announcement, Davis said in an interview with American Banker on Tuesday afternoon.
The board felt it "would be a perfect time for [Cecere] to step up in a new role, with the new administration," Davis said. While there is some uncertainty about how economic policy will play out in the years ahead, the incoming Trump administration "without question" will be a boon to the bread-and-butter business of retail banking, Davis said.
It's an opportune time for Cecere to establish himself as the new face of the company when Washington is in transition, Davis said. He noted that his 10-year tenure closely tracked the tenure of President Obama, who will leave office later this week, having put in place a tough, crisis-era regulatory framework.
"It wasn't part of the choreography, but it seems to work out quite nicely, as Andy gets to know … Congress and the regulators as the CEO and not the emerging CEO," Davis said.
Over the coming months, before the succession officially takes effect, Davis will make the rounds with Cecere, giving him an entrée with lawmakers, regulators and other high-profile civic leaders.
"I will continue to work with [Davis], who has been very active with regulators and politicians and the community," Cecere said Tuesday. "He's been much more involved with that than I have. He's going to be gracious enough to help me through that and introduce me to the right people in the right ways through the next three months."
Over the past decade Davis established himself as the face of U.S. Bancorp, deftly leading the company through the mortgage bust. While several of his peers scaled back during the downturn, Davis took a series of bold steps that enabled the company to thrive when the market bounced back.
Davis picked up assets from failing banks in California and expanded the company's presence in Chicago. He also oversaw the launch of a municipal underwriting group, bolstering the company's appeal to corporate clients.
During a tough business environment, Davis walked a delicate line between being a stickler at cost-cutting while also making forward-thinking investments in technology.
Still, he will leave the company at a time when costs are on the rise. Profits barely budged during the fourth quarter as higher expenses associated with an enforcement order and other compliance issues overshadowed broad-based loan growth.
The company's efficiency ratio was 55.3%, compared with 53.9% a year earlier. (The lower a bank's efficiency ratio, the better.) While the incoming Trump administration is expected to ease the regulatory burden for banks, Davis said Wednesday that he doesn't expect overall compliance costs to decline significantly in the coming years given that U.S. Bancorp is such a large bank and some stress-testing regimens are worth keeping even if they become voluntary.
"I'm more disappointed than anybody that we hit that 55% efficiency ratio," Davis said, noting that the company "underestimated" the cost of working through its October 2015 enforcement order from the Office of the Comptroller of the Currency.
There a number of questions facing the company, as the leadership transition begins. Among them is how Cecere will grow the company in the years ahead.
Despite the recent surge of optimism in the industry, a number of pressures remain, including historically low margins. U.S. Bancorp is also currently barred from growing through acquisitions because of a regulatory order imposed by the Office of the Comptroller of the Currency.
There's also the nearly constant pressure to innovate. Davis said Cecere, along with next generation of bank CEOs, will be defined by how well they invest in technology to stay competitive.
Still, analysts praised Davis' track record at the company over the past decade.
"Davis has an unblemished record," said Scott Siefers, an analyst with Sandler O'Neill. "He definitely leaves the company in as good as or better a place than he found it, which is in and of itself admirable."
Davis was named CEO of U.S. Bancorp in 2006, succeeding veteran executive Jerry Grundhofer. Davis joined the company in 1993, after previously working at Bank of America and Security Pacific Bank in Los Angeles, which was acquired during the crisis by the $21 billion-asset PacWest.
During the interview Tuesday, Davis said that he began preparing to step down as CEO three years ago, laying out a plan for the board of directors to promote Cecere to CEO.
The timing was designed to give the board enough time to evaluate Cecere as a candidate — and to give Cecere, 56, time to grow into the position.
"I have a strong personal belief that 10 years is optimal for anybody to run a company," Davis said.
For Davis, the key part of that calculation is said to be a long-held desire to devote the final chapter of his career to service-oriented work.
Davis said he hasn't figured out what, exactly, his next role will, but he said he wants to focus on "mission-based" work. He and his wife of 38 years, Theresa, have a desire that's "just short of religious" to make an impact on their communities, he said.
"That's code for I'm not going to go work for another bank," Davis said.
Asked whether he would entertain the idea of going into politics, he demurred but said he would be open to the idea if the position involves "changing the world."
Though Davis will stay on as chairman through the indefinite future, it's unclear whether U.S. Bancorp will keep the roles separate over the long term.
Davis emphasized that separating the chairman and CEO roles is common at large, public companies as they work through a transition. When Davis took over as CEO in 2006, for instance, Grundhofer stayed on as chairman for an additional year.
Still, given the growing pressure from investors to separate the roles permanently, in the name of good corporate governance, U.S. Bancorp may find it difficult to combine them again down the road, Siefers said.
Looking back at his tenure as CEO, Davis said he has given little thought to his legacy.
But he says he is nonetheless proud of the role he played in helping his employees — and the industry as a whole — understand the important role that banks play in a healthy, growing economy.
"Banking is not an inspired activity, per se, but what bankers do is very inspired," Davis said. "If I had anything I wanted to leave behind, it was to help a lot of well-intentioned bankers have a mission in life that's bigger than just the job."