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U.S. Bancorp CEO: 'Optimism is high, but actions are not present yet'

U.S. Bancorp executives said Jan. 18 that consumer and business sentiment appear stronger since the election but that there has been little change in actual demand.

Bank stocks have ripped higher following the presidential election of Donald Trump with expectations of a looser regulatory environment and lower taxes on top of an already improving economy. Speaking during the bank's 2016 fourth-quarter earnings call, management at U.S. Bancorp said sentiment has improved but there is no sign of increased demand from the private sector. Also, management said benefits from lower taxes or regulatory reform would take some time due to the political process.

"We're like canaries in the mine. We can see balance sheets; we can see customer behavior. Optimism is high, but actions are not present yet, so we're going to wait and see," said Chairman and CEO Richard Davis.

During the call's question-and-answer session, an analyst asked if there were any signs of increased investment following the election, particularly in the manufacturing sector in the Midwest where the Minnesota-based superregional bank has a significant presence.

"There's more optimism and positive commentary for a lot of our business customers, but we haven't seen a significant change in utilization or actual takedown of credit yet," said President and COO Andy Cecere. "While the talk is there, the actual action has not yet shown itself."

Cecere said the bank's overall utilization rate is relatively flat, compounded by the fact that the bank has pulled back from certain areas, most notably commercial real estate. Management said certain commercial real estate markets appear to be "late-stage credit cycle." Particularly in multifamily, management said there are forecasts for broad-based rental rate declines. Davis said the bank is willing to lose some loan growth rather than chase competitors on price.

On tax reform, Davis said any passage would likely come in late 2017 or early 2018 due to the political process. Management said they expect to realize roughly half of any decline in the corporate tax rate, meaning a reduction of 10 percentage points in the corporate rate would translate to a decline of 5 percentage points to 6 percentage points in the bank's effective tax rate due to the bank's use of tax credits.

Similarly, Davis said investors should temper expectations about benefits from regulatory reform. The Trump administration has indicated its top three priorities are repealing healthcare reform, enacting tax policy reform and implementing an infrastructure program, meaning financial services reform will not happen immediately. Further, Davis said much existing regulatory reform is beneficial to bank operations and would remain in place even if it were not required.

"I've got to tell you, it's going to be on the margins," Davis said. "Most of this stuff is burdened in, it's in the run rate. It turns out a lot of it is good operating policy and good compliance review tactics for double- and triple-checking, and we're not going to give up a lot of that."