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U.S. Bancorp Lowered by Moody’s as Low Rates Damp Profit

U.S. Bancorp, the nation’s fifth-largest lender by deposits, was downgraded by Moody’s Investors Service as record-low interest rates pressure earnings.

The senior debt rating was lowered to A1 from Aa3, reflecting “the inescapable challenges that even a well-managed and diverse banking franchise currently faces,” the ratings firm said today in a statement on the Minneapolis-based lender. “Among these challenges are protracted low interest rates that will place pressure on U.S. Bancorp’s net interest margin.”

The lender has been focusing on taking market share in mortgage banking, a business that’s been a “real positive” for the company, Chief Executive Officer Richard Davis, 54, told investors in September. That could expose the bank to “incremental volatility” and “weaker earnings over time,” Moody’s said in today’s statement. U.S. Bancorp is also grappling with regulation and “heightened lending competition” that could pressure revenue, Moody’s said.

“U.S. Bancorp continues to be one of Moody’s highest-rated banks, both domestically and globally,” according to the statement. “This positioning recognizes the strength of its diverse business model, which results in limited concentration risk, superior operating efficiency and above average and more stable earnings than other banks.”

Moody’s has downgraded more than a dozen of the world’s biggest banks this year, including Citigroup Inc. and Bank of America Corp., amid an industrywide review of firms with significant capital-markets operations.

Excluding the first quarter of this year, U.S. Bancorp has boosted profit every quarter since the last three months of 2009. Davis, who has run the lender since 2006, never posted a loss while at the helm and calls his banking strategy of taking deposits and making loans “boring.”

Tom Joyce, a spokesman for U.S. Bancorp, declined to comment on the downgrade.

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