Wednesday, February 18, 2009

US Bancorp Reeling

Not too long ago, Minneapolis-based US Bancorp (USB) was held up as an example as a ‘good bank’ with a strong loan portfolio. As recently as September, the stock was trading as high as 42 and the bank was widely hailed as one of the few national banks that was gaining ground on weaker competitors. On January 21, however, the bank announced a 65% drop in earnings as a result of a deteriorating loan portfolio and securities losses and the story began to unravel.

In reviewing the performance of bank stocks over the course of the past week, I was surprised to see that among large banks, US Bancorp has been the worst performer of all. The chart below shows the earnings-related 52-week low from January 21 was taken out decisively yesterday, following a week of heavy volume in which the stock lost a third of its value.

While investors are watching Citigroup (C) and Bank of America (BAC) closely for signs of weakness, perhaps US Bancorp and the regional banks are better indicators of what is going on in the banking landscape than their quasi-governmental big brothers.

[source: StockCharts]

7 comments:

Med Fins said...

I personally am involved with USB. It is a very conservative bank serving in areas not much affected by sub-prime and is a good bank. It is just being shorted and tagged with other banks. Hey, business declined for every company in the last one year, what's strange in that? There is a difference between business decline like USB and showing massive losses like C, BAC etc.

It will come victorious. I would say this is a good chance to buy.

Bill Luby said...

Just for the record, I actually like the bank and the stock -- especially relative to its peers.

I was just surprised at how well the stock had performed in the past week. Of course, when its a bank and there is smoke, you can expect the shorts to pile in.

Cheers,

-Bill

market folly said...

I also noticed how things were holding steady for them as a 'good house in a bad neighborhood' and then they just started falling off a cliff. no house in a bad neighborhood is safe, really.

I actually think that a few select regional banks will be resounding buys here at the end of all this, but you'll have to have prolific timing to execute that one. I've been doing DD on some of them and am obviously in no hurry. But, I think you're right to be monitoring the regionals. There are going to be some big landmines in there just waiting to explode. The thing about US bank that intrigues me is all their midwest exposure. I think that could actually be the thorn in their side given how agriculture is struggling and industrial employers are laying people off all over the place.

Eric said...

I got taken to the woodshed with USB, thankfully I had puts. But still, death by a thousand cuts. I cannot justify buying Bank Equity. It does not matter how good a bank is. If half a companies value is associated with its sector, then you cannot be a buyer. Really anything can happen, and if we have another big failure or govt takeover, it seems that USB will get thrown out again. Assets that may have market value now, could see major devaluation if there is another major event. That scenario seems inevitable as state and Federal govt does not seem to have a solution. Honestly, they should have implemented an RTC Part Deux after Bear Stearns, but I think it is too late now.
For the record, Long FAS Calls, Long SSO Puts, Long OTM SKF Puts but only 1% of portfolio.

Anonymous said...

Other banks only do slightly better for their stock price just due to the fact they get promoted by certain "analysts" on television.

U.S. Bancorp is one of only a few that actually made a profit last quarter... despite the headlines saying 65% loss. It wasn't a loss, they still made a PROFIT. It was just less money than it could have been. Unlike banks like Goldman Sachs which is so popular and promoted by CNBC all the time, yet they posted a 4th quarter loss of 2 billion.

The media has more control over the market than anyone. Its totally unfair also.

TomOfTheNorth said...

It should be no surprise to anyone that banking is taking a hit - all banking. I was surprised to see that USB shares have somewhat underperformed relative to WFC. However USB has a far better performance relative to BAC & C. So if you own USB I suppose it could be worse. But the central question remains, why own ANY bank until the economy reaches some kind of equilibrium? We're a long way out yet. A juicy spread will not offset the inevitably increasing writeoffs. Lower lows still to come, for some time to come.

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