U.S. Bancorp Enlists Other Banks To Make Retail Loans for a Fee

PORTLAND, Ore. -- U.S. Bancorp wants to pay banks and thrifts throughout the West to market its loans.

Under the company's newly launched agent-banking program, participating institutions can market an extensive package of consumer loans under their own names and have the credits underwritten by U.S. Bancorp.

Marketing materials will be supplied by U.S. Bancorp, whose subsidiaries include U.S. Bank of Oregon, the largest bank in the state. It will also pay a fee to agent banks and thrifts for originating loans.

Cornerstone of Larger Strategy

For U.S. Bancorp, agent banking is part of a larger strategic plan to securitize part of its consumer loan portfolio and increase fee income - without building assets and tying up capital.

The company intends to package and sell its agents' loans in the secondary market, generating servicing fees in the process. It expects a first offering of $100 million to $200 million in auto or home-equity credits, within 24 months.

"We want to create fee income out of interest rate and credit-risk products," said Richard W. Eichhorn, president of U.S. Bancorp's emerging businesses group.

Agent programs are common for specific loan products such as credit cards. But experts say U.S. Bancorp is the first to provide a full array of retail products, including installment loans, revolving lines of credit, home-equity loans, credit cards, and debit cards.

|Comprehensive Product Range'

"There are people doing individual pieces. But until U.S., there was no one in the market providing a comprehensive product range," said Siddarth Mehta, a Los Angeles-based staff member of the Boston Consulting Group, which helped design the Oregon company's program.

U.S. Bancorp is marketing the agent program to capital-short institutions that do not want to add assets, and to banks and thrifts that do not have the resources to provide a full range of products.

The program got a boost earlier this month when HomeFed Corp., a San Diego-based thrift with $19 billion in assets, agreed to market U.S. Bancorp's consumer loans in its 212 branches.

U.S. Bancorp's agent program "allows us to maintain a full-service banking posture while minimizing capital reserve requirements," said HomeFed product manager Stephanie McLaughlin. Fees for marketing the loans are "icing on the cake," she added.

Agents Starting to Queue Up

Two U.S. Bancorp-owned thrifts and Summit Savings Bank, a $121 million-asset thrift in Bellevue, Wash., have also signed on as agents since the program was launched in April. U.S. Bancorp says it expects to sign a pact soon with another large California thrift, which it won't identify.

By the end of the summer, the company expects the agent program to be operating in about 500 branches, outnumbering the approximately 370 retail offices in its own network.

Agent banks can pick the loan products they want. HomeFed, for example, is marketing home-equity credit lines, fixed-rate second mortgages, and auto loans.

The program allows HomeFed to offer its customers a complete line of loans at a time when it does not want to originate new consumer credits. The thrift is reeling from real estate development losses in the past several quarters and has little appetite for assets.

Alert to Possible Downside

U.S. Bancorp acknowledges that the program has some risks. There could be problems selling loan pools to the secondary market. Pricing and spreads could turn against the company and the market for consumer loans could dry up, forcing U.S. Bancorp to keep agent bank loans in its own portfolio.

In addition, U.S. needs to generate a large enough volume of loans to go to the secondary market frequently. "The risk is we won't get to volumes that are truly profitable," Mr. Eichhorn said.

Credit risk is not a major factor. Since U.S. Bancorp does the underwriting, the credit quality of agent loans should meet the same standards as loans originated directly by the company, which has a reputation for quality and a record of profitability.

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