Building a war chest to expand in the Pacific Northwest, U.S. Bancorp plans to raise as much as $300 million through two sales of preferred stock.
The offerings will substantially increase U.S. Bancorp's already hefty capital ratios, moving the bank in range of industry leaders. The Portland, Ore., company said the preferred stock, to be issued in two installments, would increase Tier 1, or core, capital to 11% of risk-adjusted assets from 7.77% in the first quarter.
In addition, Paul M. Devore, chief financial officer, said that as much as $4 billion in assets could be acquired with the new capital.
More Buyer than Seller
"U.S. Bancorp has been perceived as an acquisition candidate," said Francis X. Suozzo, an analyst with S.G. Warburg & Co. "With the preferred deal, they signal they are more of a buyer than a seller."
About $50 million of the new capital will pay for the planned acquisition of 49 branches in northern California and Nevada from BankAmerica Corp., Mr. Devore said.
BankAmerica agreed to sell the branches to win regulatory clearance of its merger with Security Pacific Corp.
No. 3 in Nevada
The branch acquisitions will raise U.S. Bancorp's share of the Northern California deposit market to 7.4% from 5% and give the $18.9 billion-asset company the No. 3 market share in Nevada, with 9.5%.
The bulk of the proceeds, though, will be used to acquire banks or failed institutions in the Pacific Northwest, Mr. Devore said. He declined to specify where U.S. Bancorp is looking, but analysts think Northern California is a major focus.
Investors have been uncertain whether the bank is a buyer or a seller, and this doubt is reflected in U.S. Bancorp's share price.
The stock was trading Thursday afternoon at $25, a 12.7 price-to-earnings multiple, lower than that for the average regional bank, analysts said.
The offerings would be U.S. Bancorp's first preferred stock sales. Most of its equity consists of retained earnings and common stock.
"U.S. Bancorp is already overcapitalized," said Arthur P. Soter, an analyst with Morgan Stanley & Co. "The Federal Reserve likes to see common equity in acquisitions, and U.S. Bancorp already has a robust common equity ratio."
Hungry for Preferred
Investors have shown an appetite for bank preferred stock this year. BankAmerica's $365 million sale led a slew of preferred issues in the first quarter.
More recently, investor demand caused Chemical Banking Corp. to increase its preferred offering to $312.5 million from $250 million last month.
U.S. Bancorp said it plans a dividend of less than 8.5%, a target that investment bankers consider reasonable. At that rate, the preferred represents a cheaper source of funds than a common stock issue. Mr. Devore said the cost of capital raised through issuing common stock is equivalent to a 12% dividend.
The preferred issue, however, may reduce earnings per share by 15 cents this year because earnings will be siphoned off to pay dividends to preferred shareholders, analysts said.