U.S. Bancorp Chief May Use Cash for Payout Boost, Acquisitions

U.S. Bancorp (USB), the nation’s fifth- biggest commercial bank by deposits, said it plans to at least double the percentage of profit it returned to shareholders last year through dividends and share buybacks.

“Raising the dividend remains a top priority for this management team,” Chief Executive Officer Richard Davis said yesterday in a conference call after the Minneapolis-based lender reported fourth-quarter results. The company also has sufficient capital for acquisitions, he said.

U.S. Bancorp, which asked the Federal Reserve for approval to raise the dividend, returned 31 percent of earnings to shareholders in 2011 and has a long-term goal of increasing that ratio to 60 percent to 80 percent, said Davis, 53.

The Fed told the nation’s 31 largest banks to test their loan portfolios against a deep recession to ensure they have the capital to withstand losses. The central bank said it would approve dividend increases and other capital distributions for lenders that demonstrate strength.

U.S. Bancorp, which has reported a profit every quarter since at least 1999, wants dividends and share buybacks each to account for 30 percent to 40 percent of profit, Chief Financial Officer Andrew Cecere said in a phone interview.

The company’s “very steady history” gives Davis confidence that the Fed will approve his request for an “aggressive” dividend increase and share-repurchase program, he said. Davis also said he may be interested in acquiring non- bank assets, including corporate trusts and credit portfolios, and that a larger deal is possible.

‘Undeniably Good’

“We have the capital” to make acquisitions, Davis said in the conference call. “I know we have the regulator confidence, and I believe the Street would accept a deal if we were to look at something and have a capital raise, but it’s not one of our goals. It would just have to be something so undeniably good that you didn’t want to pass.”

U.S. Bancorp climbed 1.1 percent to $29.08 yesterday in New York trading and has gained 6.5 percent in the past year, the top performance in the KBW Bank Index (BKX) of 24 U.S. lenders.

Fourth-quarter net income attributable to the bank rose to $1.35 billion from $974 million a year earlier, the company said yesterday in a statement. Earnings per share, excluding some items, was 64 cents, one cent higher than the average estimate of 30 analysts surveyed by Bloomberg.

The company reported a $130 million expense related to mortgage-servicing.

Mortgage Investigations

About a dozen state attorneys general met last week to discuss their mortgage investigations and how they might work together as settlement talks with banks over foreclosures drag on, three people familiar with the matter said at the time. The meeting occurred as state and federal officials negotiate a settlement with the five largest mortgage servicers that would set requirements for conducting foreclosures and provide relief to homeowners.

“The banks beyond the big five have been invited into the conversations” with attorneys general and regulators, Davis said in the conference call. “We believe we have something that we need to reserve for.”

PNC Financial Services Group Inc., the sixth-largest U.S. bank by deposits, set aside $240 million for costs tied to residential mortgage foreclosures as a result of “ongoing governmental matters,” the Pittsburgh-based company said yesterday in a statement. CEO Jim Rohr, 63, declined to elaborate on the firm’s government relations during a conference call.

U.S. Bancorp has a capital cushion of about $4 billion, giving Davis reason to be confident that the Fed will approve his dividend and share repurchase proposals, said Marty Mosby, a Memphis, Tennessee-based analyst at Guggenheim Securities LLC.

“They can feel very confident in their capital position and their ability to get approval for the plan they feel like they want to put out there,” Mosby said in a phone interview.

To contact the reporters on this story: Patrick Clark in New York at pclark48@bloomberg.net; Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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