(USB) U.S. Bancorp to Buy Trust Business

U.S. Bancorp (USB) is making a strategic acquisition for its institutional trust and custody division. The company through its lead bank, U.S. Bank National Association, has entered into a definitive agreement to buy from Union Bank, N.A. its institutional trust business that offers services to retirement plans, labor management trusts and registered investment advisors.

Union Bank is a subsidiary of UnionBanCal Corp., which is owned by Mitsubishi UFJ Financial Group Inc. (MTU). Terms of the transaction were not disclosed.

The deal is a strategic fit for both U.S. Bancorp and Union Bank. For U.S. Bancorp, the acquisition will bring in approximately 4,300 client relationships representing $42 billion in assets under administration. The purchase will expand the company’s footprint and boost its market share in retirement plan, labor management trust and registered investment advisor business segments.

On the other hand, Union Bank plans to strategically augment its banking, global treasury management, asset management, brokerage, corporate trust and institutional custody business segments nationwide. Hence, the sale would help the company to reinvest capital in its core business.

Recent Acquisitions

U.S. Bancorp seems to be on an acquisition spree. Recently, the company’s lead bank, U.S. Bank National Association, agreed to acquire the Indiana corporate trust business of UMB Bank, a subsidiary of UMB Financial Corporation (UMBF). The deal will expand its trust business and is expected to be accomplished on March 2, 2012. However, the terms of the agreement were not disclosed by the company.

Last week, through its lead bank, U.S. Bancorp acquired the banking operations of BankEast, a subsidiary of BankEast Corporation, in a deal assisted by the Federal Deposit Insurance Corporation. BankEast is based in Knoxville, Tennessee.

For U.S. Bancorp, the deal is a strategic fit as the community banking model of BankEast is quite attractive and the deal would help it to expand in the Tennessee market. The 10 branches of BankEast in the Knoxville area will raise U.S. Bank’s total branch count in Tennessee to 91.

Our Take

U.S. Bancorp has a well-balanced business model, with non-interest revenue representing nearly half of its total revenue. Its results have been driven by a combination of acquisitions and organic growth. Also, we expect continued investments in core banking and fee-based operations to generate long-term revenue growth.

Going forward, we expect U.S. Bancorp to benefit from its diversified revenue base and strategic acquisitions, thereby posting growth in core earnings going forward. Yet, a tardy economic recovery and a low interest rate environment along with regulatory issues remain our concern.

U.S. Bancorp shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation.

MITSUBISHI-UFJ (MTU): Free Stock Analysis Report

UMB FINL CORP (UMBF): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

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