US Bancorp Pacts with Nuveen - Analyst Blog

US Bancorp (USB) has announced a strategic alliance with Nuveen Investments Inc. In exchange of the long-term asset management business of FAF Advisors, an affiliate of the company and advisor to the First American Funds family of mutual funds, US Bancorp would acquire a 9.5% stake in Nuveen, besides cash considerations. The deal is expected to close by the year end and is subject to customary closing conditions and mutual funds’ boards of directors’ approval.

 

The deal would enable US Bancorp to leverage Nuveen’s strong distribution capabilities and the bank’s wealth management customers would benefit from the expanded opportunities arising from an increase in capabilities.

 

Following the completion of the deal, Nuveen’s assets under management would increase by about $25 billion to $175 billion. The combined entity will operate under the name of Nuveen Asset Management, having operations in Chicago and Minneapolis.

 

Nevertheless, the investment products and capabilities to support cash management, securities lending and advisory services to the First American Money Market Funds would be retained by U.S. Bancorp. Such services would be provided by the same team but under a new name – US Bancorp Asset Management.

 

 

US Bancorp reported second quarter earnings of $766 million or 45 cents per share. Excluding the benefits related to the issuance of perpetual preferred stock in exchange of certain income trust securities, the company earned 40 cents, a penny ahead of the Zacks Consensus Estimate of 39 cents.

 

The improvement in earnings primarily stemmed from a strong growth in revenues, reflecting the business initiatives on the part of the company, including acquisitions. Though still at elevated levels, credit metrics improved sequentially. Net charge-offs and nonperforming assets declined sequentially as economic conditions moderated.

 

 

We expect US Bancorp to post growth in core earnings and benefit from its diversified revenue base and strategic initiatives. The company is one of the biggest retail banks in the U.S. and is one of the nation’s top 10 banks overall. It has weathered the economic downturn relatively well and was one of the first few companies to repay the TARP bailout money.

 

Nevertheless, we think that the stressed residential real estate markets and mortgage-related industries and the impact of the U.S. economic issues on commercial and retail customers will continue to weigh on the shares in the coming quarters. However, the sequential improvement in the credit quality was impressive.