U.S. Bancorp may always be more George Bailey than Gordon Gekko, but its executives can still recognize an opportunity to exploit weakness on Wall Street when they see it.
With the financial crisis displacing or disabling many of the league-table regulars in capital markets businesses such as high-grade debt underwriting, U.S. Bancorp has been building a track record of arranging deals for large corporate issuers. In 2009 it helped sell $1.3 billion of bonds for clients including AutoZone Inc. and Lincoln National Corp., serving as joint book-runner alongside the likes of JPMorgan Chase & Co. and UBS AG.
Though it has a considerable ways to go to be a major player, U.S. Bancorp's corporate-bank expansion is part of a broader strategy to beef up the offense at a company mainly celebrated for its strong defensive game. But the corporate-banking effort was not predicated on a sharklike instinct to smell blood in the water. Rather, it was seen by executives as a natural outgrowth of the lending, treasury management, payments and trust services that the $280 billion-asset company already was providing to big corporate customers.
The decision to turn more aggressive came in 2006 with the hiring of Dick Payne, a veteran of capital markets players including Chemical Bank, NationsBanc Montgomery Securities and Bank of America Corp. At that time, U.S. Bancorp "was a very good regional corporate bank" with credit relationships involving most of the corporations in the lender's Midwest territory, said Payne, now U.S. Bancorp's vice chairman and head of corporate banking. "We saw no reason not to start calling more aggressively out of our footprint."
There was a crowded field of competitors marketing similar services then, and even pitch meetings that ran smoothly for Payne's team often concluded with prospective clients deciding they did not need to add more banks to their rosters.
That changed quickly, though, as the credit crisis unfolded.
"Corporate customers and prospects started looking at their bank groups and realizing there wasn't as much capacity available, that there were people they had depended on in the past who simply were no longer there, or who had changed strategies," Payne said. "Then they would remember those guys from Minneapolis who called."
Now the company is about 60% of the way to where it wants to be as a corporate bank, with more products and a more robust client list that has taken it well outside its traditional areas of geographic concentration, Payne said.
U.S. Bancorp, which does not release specific results for the corporate bank, has about 75 corporate bankers in New York and another 30 or so in Charlotte, along with smaller staffs in Chicago and Los Angeles.
Without the dislocation caused by the financial crisis, "I don't think we would have had access to some of the talent pool we had access to," Payne said. "The flight to quality has happened in a lot of ways. Customers have experienced a flight to quality banks, and good people have experienced their own flight to quality, to banks they perceive to be survivors and thrivers."
But not everyone is manning the flight to quality at warp speed. For AutoZone, an auto parts chain based in Memphis, the decision to rotate U.S. Bancorp into its core group of book-running managers came after careful review.
"We had to feel good about the relationship, to test and to trust," said Brian Campbell, AutoZone's treasurer. He said his company already had been involved with U.S. Bancorp on several fronts, including a revolving credit facility, which made the decision easier.
U.S. Bancorp was a joint book-runner on the deal with JPMorgan Chase and Wells Fargo & Co.'s Wachovia unit in June. U.S. Bancorp helped arrange two more debt sales in December, a $500 million issue for itself and a $300 million note sale by Lincoln National, a life insurance company.
U.S. Bancorp also opened a trading floor in Charlotte late last year, where it will conduct secondary market trading for issuing customers and institutional clients.
To be sure, it is a tricky time for a bank to be expanding its commitment to Wall Street-style businesses, given the new regulatory scrutiny of the sector and economic uncertainties. But U.S. Bancorp Chairman and Chief Executive Richard K. Davis, who has proudly spoken of his company's expansion in corporate banking, insisted last month on a conference call with investors that it will remain a "fairly simple" bank distinguished from larger rivals that have become the target of public scorn and newly proposed fees or taxes.
Davis' insistence underscores the risks presented by the changing political environment, not to mention the potential danger awaiting banks that stray from their comfort zone.
"There's always that risk, and that does raise some concerns," said Dennis Klaeser, a Raymond James & Associates analyst who has a "buy" rating on U.S. Bancorp's stock. But Klaeser said U.S. Bancorp's management "is appropriately sensitized to the issue," and with larger rivals somewhat set back on their heels by the uproar over the biggest banks, "it's a very good opportunity for U.S. Bancorp to exploit that situation."
Payne said his team has no desire to get involved in the types of businesses from which the Obama administration has proposed banning commercial banks. "We're not heading down the path of becoming a quasi-corporate-bank-slash-quasi-investment-bank. We are definitely not prop trading" for returns on proprietary capital, Payne said. He also said he does not intend to steer the bank into merger advisory work.
But one function that could be added is municipal bond underwriting, according to a source familiar with internal discussions at the company. U.S. Bancorp already has state and municipal customers for more traditional bank services such as treasury management, payments and letters of credit.
Expanding those relationships would be one more way in which the company, much as it did with the carefully considered retail branch acquisitions it made in recent years, can show that risk aversion and growth do not have to be mutually exclusive.