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Rating Action:

Moody's reviews U.S. Bancorp for downgrade (senior unsecured A1)

22 Feb 2018

New York, February 22, 2018 -- Moody's Investors Service, ("Moody's") has placed the long-term ratings of U.S. Bancorp and its subsidiaries (USB), including its bank subsidiary, U.S. Bank National Association (U.S. Bank), on review for downgrade. U.S. Bancorp is rated A1 for senior unsecured and subordinated debt. U.S. Bank is rated Aa1 for long-term deposits and A1 for issuer and senior unsecured debt ratings. The bank's baseline credit assessment (BCA) of aa3 and counterparty risk assessment of Aa2(cr) are also under review. The bank's short-term ratings of Prime-1 for short-term deposits and senior debts were affirmed and are not under review.

On Review for Downgrade:

..Issuer: U.S. Bancorp

....Long Term Issuer Rating, Placed on Review for Downgrade, currently A1, outlook changed to Rating Under Review from Stable

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently A1, outlook changed to Rating Under Review from Stable

....Senior Unsecured MTN, Placed on Review for Downgrade, currently (P)A1

....Senior Unsecured Shelf, Placed on Review for Downgrade, currently (P)A1

....Subordinate, Placed on Review for Downgrade, currently A1

....Subordinate MTN, Placed on Review for Downgrade, currently (P)A1

....Subordinate Shelf, Placed on Review for Downgrade, currently (P)A1

....Junior Subordinate Shelf, Placed on Review for Downgrade, currently (P)A2

....Pref. Shelf, Placed on Review for Downgrade, currently (P)A2

....Pref. Shelf Non-cumulative, Placed on Review for Downgrade, currently (P)A3

....Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently A3 (hyb)

..Issuer: U.S. Bank National Association

....Long Term Deposit Rating, Placed on Review for Downgrade, currently Aa1, outlook changed to Rating Under Review from Stable

....Long Term Issuer Rating, Placed on Review for Downgrade, currently A1, outlook changed to Rating Under Review from Stable

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently A1, outlook changed to Rating Under Review from Stable

....Senior Unsecured Bank Note Program, Placed on Review for Downgrade, currently (P)A1

....Subordinate Bank Note Program, Placed on Review for Downgrade, currently (P)A1

....Long Term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa2(cr)

.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently aa3

.... Baseline Credit Assessment, Placed on Review for Downgrade, currently aa3

..Issuer: Firstar Realty LLC

....Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently A3 (hyb)

..Issuer: U.S. Bancorp (Old)

....BACKED Subordinate, Placed on Review for Downgrade, currently A1

..Issuer: USB Capital IX

....Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently A3 (hyb)

..Issuer: USB Realty Corp.

....Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently A3 (hyb)

..Issuer: Elavon Financial Services DAC

....BACKED Long Term Issuer Rating, Placed on Review for Downgrade, currently A1, outlook changed to Rating Under Review from Stable

....BACKED Long Term Deposit Rating, Placed on Review for Downgrade, currently Aa2, outlook changed to Rating Under Review from Stable

Affirmations:

..Issuer: Elavon Financial Services DAC

....BACKED Short Term Issuer Rating, Affirmed P-1

....BACKED Short Term Deposit Rating, Affirmed P-1

..Issuer: U.S. Bancorp

....Commercial Paper, Affirmed P-1

..Issuer: U.S. Bank National Association

....Short Term Counterparty Risk Assessment, Affirmed P-1(cr)

....Short Term Deposit Rating, Affirmed P-1

....Commercial Paper, Affirmed P-1

....ST Bank Note Program, Affirmed (P)P-1

..Issuer: U.S. Bank National Association, Canada Br.

....Commercial Paper, Affirmed P-1

Outlook Actions:

..Issuer: Elavon Financial Services DAC

....Outlook, Changed To Rating Under Review From Stable

..Issuer: U.S. Bancorp

....Outlook, Changed To Rating Under Review From Stable

..Issuer: U.S. Bank National Association

....Outlook, Changed To Rating Under Review From Stable

RATINGS RATIONALE

Moody's review is the result of USB's announcement of agreements and monetary penalties with several regulatory agencies regarding previously disclosed deficiencies in its Bank Secrecy Act/anti-money laundering (BSA/AML) compliance program. Settlements were reached with the Office of the Comptroller of the Currency, the Federal Reserve Board, the Financial Crimes Enforcement Network, and the U.S. Department of Justice. In total, U.S. Bancorp will pay $613 million to regulators.

Moody's said that the regulators cited several past control failures and breakdowns in USB's compliance risk reporting, which call into question the rating agency's own assumption that USB's risk management is superior to peers'. Additionally, the total amount of the penalties was above Moody's expectation, although modest in the context of USB's earnings and capital.

Moody's review will consider the extent to which USB's risk governance remains a comparative strength relative to its large bank peers and justifies its high BCA. The BSA/AML issue stains what had been USB's relatively clean track record in avoiding risk management failures and regulatory sanctions in the past decade. Moody's will consider USB's changes to board processes and oversight and the ability to guide management in identifying and mitigating potential future risk. The review will also focus on USB's enterprise-wide risk governance and likelihood that further missteps could be discovered outside of BSA/AML, particularly with regard to asset quality and operational risks. This includes potential other legal vulnerabilities considering that any other violations of federal law, even in an unrelated matter, could be deemed a violation of the deferred prosecution agreement.

Factors that Could Lead to an Upgrade

USB's ratings could be affirmed if Moody's concludes that USB has superior enterprise risk governance and management relative to peers and that it is likely to maintain above-average and consistent financial metrics.

Factors that Could Lead to a Downgrade

USB's long-term ratings could be downgraded if the rating agency concludes that USB's enterprise risk governance and management has not been enhanced enough to distinguish it relative to peers. A sustained weakening in asset quality, capital or profitability metrics would also be negative.

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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
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

No Related Data.
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