U.S. Bancorp latest bank to lower profit forecast

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U.S. Bancorp cut its estimates for revenue and profit growth over the next three years, a result of lower interest rates and a slowly expanding economy.

The $482 billion-asset banking company became the latest to reduce profit forecasts in the past week, following JPMorgan Chase, Citigroup and Wells Fargo. All of them cited lower interest rates after the Federal Reserve cut rates by a quarter of a basis point on July 31.

U.S. Bancorp, based in Minneapolis, now expects revenue to grow between 5% and 7% per year through 2022, Chief Financial Officer Terry Dolan said on Thursday at the company’s investor day. Its previous estimate was 6% to 8%. The company cut its forecast for net income growth over the same period to 5% to 7%, also down from 6% to 8%.

Moreover, the company said it expects its net interest margin to decrease between 10 and 11 basis points this quarter. It had earlier forecast a decrease of 8 basis points.

U.S. Bancorp expects the Fed to further cut the short-term federal funds rate to 1.5% by early next year, from its current target range of 2% to 2.25%. It also projects that long-term rates such as the 10-year Treasury will increase modestly next year.

Gross domestic product is likely to rise between 1.5% and 2% each year, a slowdown from current growth rates, U.S. Bancorp said. GDP rose 3.1% in the first quarter of this year from the previous quarter; it increased 2% in the second quarter, according to the Bureau of Economic Analysis.

Noninterest income should improve in the third quarter, Dolan said, on higher fees from mortgage banking, capital markets and merchant-acquiring services in its payments business.

“We’re getting sales growth of 7% to 9% from merchant acquiring,” Dolan said.

The bank’s rate of expense growth should also slow over the next three years, Dolan said. The company expects expenses to rise between 2% and 3% per year, down from a previous estimate of 3% to 5%.

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