New York, August 05, 2020 -- Moody's Investors Service (Moody's) has affirmed the ratings of U.S.
Bancorp (USB) and its rated subsidiaries, including the group's
main bank operating entity U.S. Bank National Association
(USBNA), and Elavon Financial Services DAC. USB is rated
A1 for long-term senior unsecured and subordinate debt.
Moody's has also affirmed the aa3 standalone baseline credit assessment
(BCA) of USBNA as well as the bank's Aa1 long-term deposit rating
and A1 long-term senior unsecured rating. The Aa2(cr)/Prime-1(cr)
Counterparty Risk Assessments and the Aa3/Prime-1 Counterparty
Risk Ratings of USBNA were also affirmed.
The rating outlooks on USB and its subsidiaries were changed to negative
from stable. "The change in outlook reflects the bank's
weaker capital position as it continues to face coronavirus pandemic challenges",
said Rita Sahu, Vice President - Senior Credit Officer.
"We expect the US economy will contract in 2020 and grow modestly
in 2021 as a result of the coronavirus outbreak, which will likely
have a direct negative impact on USB's and other US banks' asset
quality, capitalization, and profitability. Because
of USB's higher ratings relative to peers, its rating position
is more sensitive to deterioration", Ms. Sahu added.
Moody's regards the coronavirus outbreak as a social risk under its environmental,
social and governance (ESG) framework, given the substantial implications
for public health and safety.
List of affected ratings:
Affirmations:
..Issuer: U.S. Bancorp
....LT Issuer Rating, Affirmed A1,
Negative from Stable
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A1, Negative from Stable
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed A1, Negative from Stable
....Senior Unsecured Shelf, Affirmed
(P)A1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
....Subordinate Regular Bond/Debenture,
Affirmed A1
....Subordinate Shelf, Affirmed (P)A1
....Subordinate Medium-Term Note Program, Affirmed
(P)A1
....Junior Subordinate Shelf, Affirmed
(P)A2
....Pref. Shelf, Affirmed (P)A2
....Pref. Stock Non-cumulative,
Affirmed A3(hyb)
....Pref. Shelf Non-cumulative,
Affirmed (P)A3
....Commercial Paper, Affirmed P-1
..Issuer: U.S. Bank National Association
....Adjusted Baseline Credit Assessment,
Affirmed aa3
....Baseline Credit Assessment, Affirmed
aa3
....LT Counterparty Risk Assessment,
Affirmed Aa2(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....LT Counterparty Risk Rating (Local Currency),
Affirmed Aa3
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....LT Counterparty Risk Rating (Foreign Currency),
Affirmed Aa3
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....LT Issuer Rating, Affirmed A1,
Negative from Stable
....LT Bank Deposits, Affirmed Aa1,
Negative from Stable
....ST Bank Deposits, Affirmed P-1
....Senior Unsecured Bank Note Program,
Affirmed (P)A1
....Subordinate Bank Note Program, Affirmed
(P)A1
....ST Bank Note Program, Affirmed (P)P-1
....Commercial Paper, Affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Negative from Stable
..Issuer: U.S. Bancorp (Old)
....Backed Subordinate Regular Bond/Debenture,
Affirmed A1
..Issuer: Firstar Realty LLC
....Pref. Stock Non-cumulative,
Affirmed A3(hyb)
..Issuer: Elavon Financial Services DAC
....Backed LT Issuer Rating, Affirmed
A1, Negative from Stable
....Backed ST Issuer Rating, Affirmed
P-1
....Backed LT Bank Deposits, Affirmed
Aa2, Negative from Stable
....Backed ST Bank Deposits, Affirmed
P-1
..Issuer: USB Capital IX
....Pref. Stock Non-cumulative,
Affirmed A3(hyb)
..Issuer: USB Realty Corp.
....Pref. Stock Non-cumulative,
Affirmed A3(hyb)
..Issuer: U.S. Bank National Association,
Canada Br.
....Commercial Paper, Affirmed P-1
Outlook Actions:
..Issuer: U.S. Bancorp
....Outlook, Changed To Negative From
Stable
..Issuer: U.S. Bank National Association
....Outlook, Changed To Negative From
Stable
..Issuer: Elavon Financial Services DAC
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
The affirmation of USBNA's aa3 BCA, which is the highest among
rated banks globally, reflects Moody's overall unchanged view
of USB's fundamental credit strengths. These include good
business and geographic diversification, which has supported strong
and above-peer average profitability over the long-term,
a solid asset quality record and conservative risk appetite, and
robust liquidity. The BCA also incorporates USB's weaker
capitalization relative to US peers, though the rating agency expects
USB's capital will be resilient under stress.
USB's profitability benefits from its significant presence in several
high profit margin businesses beyond its core branch-based retail
and commercial banking operations, including consumer and commercial
credit cards, global corporate trust, fund services,
and payment processing. This has led to a strong through-the-cycle
asset quality record and solid earnings. However, the rating
agency believes that some of the factors that have contributed to USB's
superior operating efficiency have been reduced by strengthening competition
and more challenging operating conditions. Despite this modest
reduction in USB's competitive advantage, the bank remains
comparatively well-positioned to compete on price while remaining
conservative in its underwriting and risk appetite.
The change in outlook to negative from stable was driven by Moody's view
that USB's weaker capitalization relative to most peers, combined
with the uncertain operating environment resulting from the potential
broadening and lengthening of the coronavirus pandemic could narrow the
balance sheet strengths and profitability gap with its US peers;
many of these peers have BCAs that are two or more notches below USB's
aa3. USB entered the period of the coronavirus pandemic with a
lower capital position relative to most peers, as measured by a
tangible common equity of 8.2% as of 31 March 2020,
corresponding to a common equity tier 1 (CET1) ratio of 9.0%
(or 8.6% with the full implementation of the Current Expected
Credit Loss (CECL) standard), as of the same reporting date.
The bank's CET1 ratio was unchanged at 9.0% (8.7%
with the full implementation of CECL) at 30 June 2020.
Although it has exhibited solid pre-provision earnings power during
the first six months of 2020, the rating agency expects that USB's
profitability will be pressured by lower revenues from low interest rates
and reduced business activity, and higher credit provisions over
the next 12-18 months. This will likely result in reduced
internal capital generation capacity.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact of the breadth and
severity of the shock, and the deterioration in credit quality it
has triggered.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook indicates that rating upgrades are unlikely over
the next 12-18 months, given the deteriorating economic environment
and its uncertain duration. The outlook could return to stable
if the company strengthens its capitalization over the outlook period,
and if Moody's observes that USB's performance in asset quality,
capitalization, and profitability proves more resilient than peers.
A stable outlook could also result from Moody's assessment that
the risks associated with the coronavirus pandemic outbreak have abated,
leading to an improvement in operating conditions that support USB's
pre-pandemic credit strengths of high earnings and low credit costs.
The BCA and ratings could be downgraded if capitalization weakens and
if Moody's observes that USB's performance is not significantly
better than its lower rated peers under the weaker operating environment.
This includes exhibiting strength in preprovision profitability and lower
credit costs than peers. Additionally, a perceived weakening
in USB's risk profile, for example, resulting from an increase
in concentration risk or evidence of a significant control failure could
also lead to rating pressure.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rita Sahu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
