Nearly a year after putting its Piper Jaffray at arm's length, U.S. Bancorp announced plans to complete the separation and said it would spin off the business through a stock distribution to its shareholders.
The announcement capped a long period of speculation over what U.S. Bancorp would do with its investment banking and asset management business - one that Jerry Grundhofer, the company's chairman and chief executive, was long known to have reservations about.
Rumors about Piper Jaffray's fate began almost as soon as Mr. Grundhofer's Firstar Corp. bought the old U.S. Bancorp, the investment banking firm's parent. Some analysts had thought a sale would be the likely outcome. One rumor had U.S. Bancorp looking to sell the brokerage to Royal Bank of Canada, which would merge it with its Dain Rauscher unit. In addition, Piper Jaffray employees said people there believed it might have ended in a management-led buyout.
However, recent instances of banking companies trying to sell off investment units have not met with much success, the most noteworthy case being FleetBoston Financial Corp.'s aborted effort to unload Robertson Stephens.
"It's possible they couldn't find a buyer," said Jennifer Thompson, an analyst with National Bank of Canada's Putnam Lovell NBF Securities Inc. in New York, who said she had heard U.S. Bancorp was looking to sell.
One key difference between Piper Jaffray and Robertson Stephens is that Piper Jaffray continues to generate a profit, though a relatively small one in the context of U.S. Bancorp's overall operation. U.S. Bancorp said that last year its capital markets division, made up primarily of the Piper Jaffray unit, generated revenue of $737.3 million but contributed less than 1% of the company's overall net income. Piper Jaffray's fourth-quarter investment-banking revenue fell more than 30% from last year, to $48 million.
The move, which the company anticipates will be completed during the third quarter, would give 100% ownership of Piper Jaffray to U.S. Bancorp's shareholders through a tax-free stock dividend distribution. Piper Jaffray would become an independent publicly traded company, in which U.S. Bancorp would hold no equity interest.
Analysts were generally upbeat about the move. Many said that it would bring more stability to U.S. Bancorp's earnings.
"It removes some of the volatility from the company's earnings stream by removing the capital markets component and concentrating on traditional banking," Scott Siefers, an analyst at Sandler O'Neill & Partners LP.
Peter Winter, an analyst with Advest, said that since the purchase (in which Firstar adopted U.S. Bancorp's name) the company has been engaged in an effort to lower the risk profile of company and exit businesses that "have a lot of volatility and risk." Spinning off Piper Jaffray "goes with the strategy of having a cleaner income statement and less noise," he said.
In a press release, Mr. Grundhofer said: "With this spinoff we are providing our shareholders with another avenue in which to benefit from their investment in our company." U.S. Bancorp bought Piper Jaffray in 1998 in a deal then valued at about $730 million.
