It's an unseasonably warm January night in Minneapolis as employees of U.S. Bancorp pack into U.S. Bank Stadium, the hometown Vikings' new $1.1 billion playground, for the company's annual all-employee gathering. The brainchild of Chairman and Chief Executive Richard Davis, the event is in its 10th year, but this is the most emotional.
Two days earlier, the 58-year-old Davis surprised pretty much everyone by announcing that he'll be retiring as CEO in April. The $446 billion-asset company has telegraphed the move for a while, promoting Davis' successor, Andy Cecere, to chief operating officer in 2015, and adding the title of president last year.
Even so, it's rare to see a guy so clearly at the top of his game stepping aside at such an early age. For the 8,000 Twin Cities-area employees in attendance (and 60,000 others watching live around the country), it's bittersweet.
One woman is wearing a pink T-shirt with the name "Richard Davis" printed in the center of a heart. Poster sticks with Davis' head are bobbing in the crowd and the line for selfies with the outgoing CEO constantly refills. Some employees are crying.
The rock-star treatment is understandable. With Davis at the helm, USB rode out the financial crisis better than any large bank, and today is near the top on most performance measures, including return on assets (1.36%), return on equity (13.4%) and efficiency ratio (54.9%).
He's also created a culture that is supremely confident in its capabilities and direction. Listening to the testimonials and war whoops from the crowd, it's evident employees are proud of their company. On stage, Cecere, a 56-year-old USB lifer, leads the tribute, declaring that Davis "is part of the fabric of our culture ... his legacy is our story."
The question is, can the low-key Cecere, with his more introverted, cerebral style, carry on that legacy and feel-good vibe as effectively as the high-energy Davis?
It's never easy replacing an icon, but most analysts and investors, including Warren Buffett, who owns 5% of the company's shares, have expressed comfort with the move. "I can't imagine a more seamless transition, even for a person as hard to replace as Richard Davis," said John McDonald, a senior research analyst with Sanford C. Bernstein.
Cecere was USB's chief financial officer for most of the past decade, and regularly appeared with Davis at investor conferences. "Andy embodies the same values as Richard about running the company for the good of all stakeholders," McDonald said. "Wall Street looks at them very much as a pair."
Within the company, the two walk in lockstep on strategy and direction, even if Cecere's more deliberative style lacks some of Davis' charisma and storytelling pizzazz.
"There aren't two Richards, and we can't get a rib and clone him. So you have to pick somebody else," said David O'Maley, a 22-year member of USB's board and its lead director. "Andy is an extraordinarily good choice. He has great leadership skills and the confidence and trust of the board."
Cecere is taking over at a tricky time. USB's returns have its shares trading at more than 16 times earnings and around two times tangible book value, a significant premium to most other big banks. But the rap among some investors is that the company hasn't grown fast enough.
Davis, a fan of sports analogies, promised earlier this decade to get USB playing "more offense," but couldn't meet three-year growth targets set in 2013 in either its banking or powerhouse payments businesses. (USB's other major business, wealth management, hit its goals.)
In 2016, net income was almost exactly the same as the year before, while per-share earnings jumped a modest 2.5%. Consensus estimates peg per-share earnings growth at 4.6% in 2017.
"It's fair to say they have fallen short of expectations," McDonald said. "They invested in wealth management, payments and corporate- and middle-market bankers when other banks were fighting for their lives, and now it's time for them to show the offense that was talked about and outgrow their peers."
With interest rates on the rise and President Trump vowing to boost economic growth and cut back on regulations — all good things for banks — Cecereis under pressure to deliver better results.
"Investors have given them the benefit of the doubt, but they're getting impatient," said Scott Siefers, an analyst with Sandler O'Neill. "With the economy improving, USB needs to start generating more positive operating leverage."
Sitting in a conference room several days after the employee event, Davis and Cecere joked easily about reaction to the leadership change. Cecere conceded that some of the attention (his enlarged head was on some of those poster sticks) was unnerving. "You get used to it," Davis deadpanned.
Neither seems fazed by all the talk about growth expectations. U.S. Bancorp has a well-earned reputation for conservatism, and is sometimes best defined by what it won't do — things management considers to be too risky, expensive, or simply wrong.
Last decade, USB famously sat out the subprime housing boom, which helped it emerge from the financial crisis as one of the industry's healthiest players and the nation's fifth-largest banking company.
Today, it has similarly pulled back from several hot sectors, including commercial real estate and auto lending, citing irrational competition.
"Right now, this very minute, there are banks all over the country doing crazy things with commercial real estate loans — 15 years, no recourse, stuff like that. They're making subprime auto loans, assuming the world will never get worse again. They're using nontraditional data that has never been tested over a cycle to underwrite," Davis said.
"It all feels like 15 years ago, very risky. So we're passing," he added. "And then people ask, 'Why were your commercial real estate loans flat last quarter when they went up everywhere else?' It's because we didn't see any loans we wanted to make."
A giant in the payments business (USB owns Elavon, the big processor), the company also has refused to get sucked into the credit card rewards wars because the cost of winning would hurt profitability.
While analysts and traders might want management to stretch for growth, Davis insists USB's core shareholders care more about "consistent, predictable and repeatable" results, and appreciate that USB doesn't take unnecessary credit risks.
"The point is, culture is not something you mess with as circumstances change," said Davis, who will remain executive chairman to ease the transition. "You pick a course, own it and do the same thing going forward."
If falling a little short on growth targets is USB's biggest issue — and by all accounts, it is — then its executives have reason to stay the course. Banking has been under siege for most of the past decade, getting blamed for the financial crisis, engaging in constant battles with regulators and squandering customer trust.
Quote"Investors have given them the benefit of the doubt, but they're getting impatient," says Scott Siefers, an analyst with Sandler O'Neill.
USB has had a couple of scrapes with the Consumer Financial Protection Bureau. It also is still working through a 2015 consent order from the Office of the Comptroller of the Currency regarding deficiencies in its Bank Secrecy Act and anti-money-laundering compliance program — a challenge that is costing more than Davis would like and prevents the company from acquiring other banks.
But among the big banks, USB has been a pillar — a "Goldilocks" company that's not too big or too small and can be counted on to provide a steady return in good times or bad.
It has stayed on the high road too. In one recent example, Davis resisted suggestions that USB aggressively pursue customers of rival Wells Fargo after the damaging sales-practices scandal there.
"Not only are we not going to do anything about it, if I find out one of our bankers is out there trying to poach Wells Fargo customers, I'll probably let them go," Davis recalled telling an investor who broached the topic last September.
It's not an altruistic point of view. "Nobody benefits from us pointing at each other and playing ugly playground games," especially when the industry has worked so hard to recover from its reputation problems, he said.
Over the years Davis has become one of the industry's most respected voices. He's met with former President Obama, sat on committees with former Federal Reserve Chairman Ben Bernanke and served on the boards of key organizations, such as the Financial Services Roundtable.
As chairman of the roundtable in 2010, Davis took the lead on efforts to restore the industry's post-crisis reputation and spearheaded a push for greater industry cooperation on cybersecurity issues. More recently, he's become a go-to source for Washington policymakers seeking an honest assessment of a proposal's impact.
His reputation even among competitors is stellar. "A lot of his colleagues refer to Richard as the best banker in the United States," said Tim Pawlenty, the roundtable's CEO.
In Minneapolis, the Los Angeles native's adopted hometown, Davis has been one of the business community's strongest voices and has served on nearly a dozen civic boards. He's currently chairman of the local economic development authority and the planning committee for the 2018 Super Bowl in Minneapolis.
Davis has brought that same civic-mindedness to USB itself. A program called Community Possible gives employees at least one day off each year to volunteer. When he asks how many in the Minneapolis crowd serve on the board of a community group, hundreds of hands shoot up. "I'm warning you, as a banker they'll always ask you to be treasurer," Davis joked.
At first glance, U.S. Bancorp would appear an unlikely candidate for a kinder, gentler culture. Efficiency has always been a corporate calling card. One of its antecedents, the old Minneapolis-based First Bank System, was run by a guy nicknamed "Jack the Ripper" for his obsession with controlling costs.
Under Davis, USB still cares about efficiency, but approaches decisions with an eye for impact on all stakeholders. When a new product is proposed, a common question is, "Would this be good for my grandmother?"
Davis has made employees feel more like partners by opening lines of communication on strategy and even hiring policy. In 2010, for example, management made a deal with employees: Instead of making 2,400 new hires, as the budget called for, the company would hire only half that many. In exchange, Davis would do what he could to protect their jobs if the economy didn't pick up as expected (which it didn't).
"It was a trade-off for job security," Davis said. "What I heard was, 'I trust you guys to look out for me, because you tell me the truth. If I have to work my tail off because you won't hire more people, but if it means I'll still be here in nine years, I'll do it.' "
In exchange, he asks employees to be partners in a hostile environment. As the biggest scandal-free bank, "we walk a tightrope that's higher than any other bank, and we have no net," Davis said. "We've been very clear with employees about this: We can't fall or even lose our balance. If we screw up, we're in trouble."
Such efforts pay off in employee engagement scores that rank in the top quartile of all companies, and have made USB a regular on a list of the "world's most ethical companies" published by Ethisphere. It is also the largest bank on the list.
Tim Erblich, CEO of the Ethisphere Institute, said USB is ahead of most banking peers in recognizing the power of openness and ethical example-setting at the top. Employees take pride when their company tackles society's ills, such as a recent initiative for serving the unbanked. That, in turn, inspires loyalty and extra effort.
"It's a secret sauce for success," Erblich said. "If employees trust the leadership, then your customers trust the employees and it all trickles to the bottom line. It's super-smart business."
It's not easy to align 70,000 employees scattered around the world — USB's retail banking business is in 25 states, and its corporate banking, wealth management and trust businesses are national, while payments is global.
When Kate Quinn started as the company's chief strategy and reputation officer in 2013, she saw a lot of people who instinctively understood the culture, but no centralized mission statement or set of core values to define it. The lack of cohesion made marketing USB to customers, another of her tasks, more difficult.
"It's such a different and unique culture, but there wasn't a set of words or unifying principles that everybody looked to for guidance," said Quinn, who worked for several large health care companies before joining USB.
Quinn led an effort that solicited from customers and employees words and phrases to describe the company. Eighteen key themes emerged, which the executive team whittled to five core values (including "We do the right thing" and "We put people first") and a purpose statement ("We invest our hearts and minds to power human potential").
Quinn said three main business goals are embodied in the culture: to be customers' most trusted choice, create a unified customer experience across business lines and channels, and continually build better processes and technologies.
Innovation is central to the effort. McDonald, the analyst, said it's not clear if USB is keeping pace with rivals on being the so-called bank of tomorrow. Cecere, a self-described techie, counters that other banks simply talk more about their initiatives.
"We hold our ideas close to the vest, because there's no upside to showing your cards," Cecere said. "It frustrates the analysts, but it's what's best for us."
Dominic Venturo, the company's chief innovation officer, said about 60% of all USB transactions are performed on a mobile device. His 25-person innovation team, which started in the payments group a decade ago, now works with all business lines to identify problems and anticipate what's next.
It has projects going on everything from blockchain to merchant-based mobile apps. One recent launch employs mobile geolocation services already used to help customers find an ATM or branch to match a customer's whereabouts with a merchant's and reduce declines of valid card transactions.
The team also runs what Venturo describes as an in-house version of "Shark Tank," the popular television show. Employees pitch ideas and the good ones get funded. One example: a "high visibility credit card" with large fonts and a divot on one end so customers with failing eyesight can feel which side to slide into a reader. "It's not all that techie, but it's definitely innovation," Venturo said.
Venturo's unit doesn't have a profit-and-loss statement, but this being USB everything is measured. Projects start small, move through research and development, are tested in experiments and pilots, then get reviewed again. "The process isn't super-cutting-edge, but it's our culture — very methodical," he said.
Being a "cultural caretaker" may be Cecere's biggest challenge. Davis' departure, particularly when the company he's re-engineered could be poised to capture the growth that has eluded it, puzzles many. Some worry that he or someone in his family is ill; others think that he's simply tired after 10 years of bank wars.
A few have speculated that he witnessed the scandal engulfing his friend and colleague, John Stumpf, the former chairman and CEO of Wells Fargo, and is getting out before something unexpected blows up.
Davis calls the latter notion "offensive." The only thing he's tired of is outsiders trying to "fill in the blanks" on a straightforward story: He got the job at an early age and thinks 10 years is long enough for any CEO to stick around. He also is ready personally for a new challenge. "I've long believed that there's one more thing for me to do in life, probably more mission-based," he said.
If the election had turned out differently, Davis thinks that could have been a role in Washington. Now, he's not sure. He could get more active in one of his causes, such as Step Up, a summer-jobs program for disadvantaged teens he helped launch in the Twin Cities.
The only things he's certain about are that he will not work for another bank, and that he has the right successor.
Cecere grew up in Norridge, Ill., then an Italian enclave in suburban Chicago. His parents were bakers, and moved to Minneapolis when Cecere was 16 to open a restaurant. He was the first in his family to complete high school.
After his 1982 graduation from the College of St. Thomas in St. Paul, Minn., Cecere went to work for Control Data, a Minneapolis computer company. Three years later he took a job as a financial analyst for USB predecessor First Bank System.
A stint running mergers and acquisitions during the go-go '90s gave Cecere a unique perspective on the industry. He was U.S. Bank's CFO when it merged in 2001 with Firstar Corp., where Davis was chief lieutenant to CEO Jerry Grundhofer. Following the merger, Cecere headed the new USB's wealth management unit, until Davis made him CFO in 2007. In that job, he earned a reputation as a sharp numbers guy.
Davis said Cecere is "less loquacious" than he is, but is "one of the smartest human beings I've ever known, and matches that with intuition about the softer issues." He said working in the family restaurant taught Cecere how to manage a service business and win loyalty, while the Catholic-school upbringing made him "a very pure thinker who values honesty, ethics and integrity."
Cecere isn't an attention-seeker. Sri Zaheer, dean of the University of Minnesota's Carlson School of Management, where Cecere earned his MBA in 1991 and is now on the board of overseers, said that when Cecere received an "outstanding achievement award" from the school in 2015, he invited only family members.
"Normally people make a big event of it, but Andy wanted it to be low-key," she said.
He also makes time each year to meet with finance students, breaking down complex finance and technology topics. "He's not an extrovert, but he's an excellent communicator, even in front of a crowd," Zaheer said.
On the board of overseers, Cecere is a detail-oriented guy who speaks only when he has something meaningful to say. "Andy doesn't dominate a room, but he always has the best observations and questions," said Robert Kueppers, the board's chairman and a retired senior partner with Deloitte.
"There's an air of humility about him," Kueppers added. "He's credible because he doesn't fill up the air with words."
Maintaining USB's credibility will likely make Cecere a success. Boosting revenue and the bottom line could make him a star, and he sounds confident that the environment will cooperate.
Loans grew 6% in 2016 year over year, but margins remain compressed. Cecere expects two rate hikes this year, which should help spreads. In conversations with business customers, he's hearing talk of economic expansion, which could give the payments business a boost and release pent-up loan demand.
USB has $110 billion in commercial line-of-credit commitments, for example, but only 25% is being utilized, down from 38% in 2004. Simply returning to those previous levels would add more than $14 billion to the loan books.
"We've always been thought of as a safe, defensive stock. When the screen is red, we're less red; when the screen is green, we're less green," Cecere said. "As the economy starts improving, I think we're going to be a little greener."
A strong performance under Cecere would no doubt make next year's all-employee gathering a celebration, even without Davis.