Dance like a Prince

11 June 2015 By Antony Currie Follow @AntonyMCurrie

U.S. Bancorp, the nation’s fifth-largest lender, is cranking up in big mortgages. CEO Richard Davis admits it’s merely to please shareholders hungry for loan growth, even if it’ll fall short of the bank’s 15 pct return of equity. Though small, such pandering can presage a crisis.

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U.S. Bancorp Chief Executive Richard Davis said on June 9 that the bank has started to grow its jumbo mortgage lending business after allowing it to shrink.

Speaking at a Morgan Stanley conference, Davis said such loans currently yield a return on equity of 9 to 10 percent.

“Our returns are 14 percent to 16 percent, and we decided we weren’t going to do it. Every once in a while – and it’s very rare actually in my career – but we looked at that more closely and decided we probably should meet the market,” he said, according to a transcript. “So beginning at the end of the first quarter … we’re starting to see our mortgage balance sheet growing again – not by much, but it’s not shrinking any more … We’ll impair a little bit of what I’d call returns to do that, but it meets the market. And we’re still making money. But we’re a bit late to the party on that one.”

Before he started speaking, an audience poll showed that loan growth was more likely to persuade investors to buy U.S. Bancorp stock than higher fee-based revenue, higher dividends or a lower expense ratio.

Asked why the bank was increasing mortgage lending now, Davis responded: “I am literally appealing to my audience. You guys matter that much: you either buy our stock or advise others to do it. If loan growth is that important and it’s more than just optical to all of you, at this moment in time to demonstrate that the bank is smart enough to do the right thing and nimble enough to adjust, that’s exactly why I’m doing it.”

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