Diving certificate:

• US Bank CEO Andy Cecere pledged Thursday to grow revenue faster than expenses in the coming years, saying the institution has made necessary investments and will make better use of its “unique business lines” than in the past.
• During the Minneapolis-based Superregion Investors Day In New York City, the bank has the right products, services and technologies, Cecere said. Now the lender aims to increase its revenue by expanding relationships with existing customers and improving employee productivity, among other things.
• US Bank has updated its medium-term profitability targets, targeting a return on equity in the high teens and an efficiency ratio in the mid- to high 50 percent range. However, some analysts expressed skepticism about the bank’s ability to achieve its goals.

Diving insight:

“Andy, I’m excited about you, but not about the results,” Wells Fargo analyst Mike Mayo told the CEO during Thursday’s event. While the bank “presented a logical story … it was a pretty logical story even five years ago, and you didn’t hit those targets,” Mayo said.

Mayo asked Cecere – a 39-year veteran of the U.S. bank – about his succession plans, asking whether the bank is considering hiring its next CEO from an outside partner and who will be held accountable for the 2027 goals when Cecere is no longer CEO.

Gunjan Kedia, the Vice President of the Bank for Asset, Corporate, Commercial and Institutional Banking, was appointed president in Maya move that suggests she is a likely candidate to succeed Cecere.

Cecere told Mayo the bank has a “robust and thoughtful” succession planning process. He also defended investments made in recent years, saying acquisitions and technology were necessary “to stay ahead” even as the bank has lost profitability compared to its peers.

“It was certainly a short-term boost, you’re right about that,” Cecere told Mayo. “But I think we’re better positioned because of it. … We needed to make those investments, especially given the changing dynamics of the banking environment and the competitive dynamics that we were facing.”

The lender, who acquired MUFG Union Bank in 2022is now at an inflection point and is determined to meet its revenue and cost targets, Cecere stressed. With these investments behind it, profits should increase, executives said, and the bank forecasts positive operating leverage for the second half of the year and beyond.

The bank “could benefit from a fresh look at its leadership,” Mayo wrote in a note to investors after the event. US Bank “has a first-class business mix that we believe should lead to better returns than demonstrated.”

Kedia’s presence at the event seemed to underscore her status as Cecere’s “presumptive successor,” noted Piper Sandler analyst Scott Siefers. In fact, Cecere pointed to areas where Kedia is taking the lead.

“When we think about the integration of our acquisitions over the years, we’ve been completely focused on technical integration and cost reduction and have been very good at that,” Cecere said. “We were — probably, I wasn’t as good at the go-to-market component and streamlining that. That’s what we’re doing now. We’re doing that now, and Gunjan is leading that across all the business units.”

Executives repeatedly emphasized the “interconnectedness” of the bank’s various business areas, such as the ability to Payments and banking for small businesses. Given the assurances that the bank’s investments will pay off, UBS analyst Erika Najarian said she continues to view this as “a ‘show me’ story,” according to a note to clients.

US Bank, which had assets valued at around $665 billion as of June 30, expects to become a Category II financial institution – but not before 2027.

As it looks to expand across the country, U.S. Bank is focused on increasing the density of its branch network in high-growth markets within its existing footprint and is relying on its digital capabilities and partnerships with Edward Jones and State Farm to “target” areas of the country where it does not have branches — primarily the Southeast and Texas, Kedia said.

U.S. Bank would like to eventually acquire a Southeastern lender, Kedia said, adding that would “just solve the problem.” But the regulatory environment makes that an “uncertain strategy,” and the bank is opting for organic expansion, she said.

The downside of the partnerships with Edward Jones and State Farm is that they are “narrow,” Kedia added. “We would rather have our own branches in certain locations … but this gives us so much reach,” she said.

“It’s not a sensational strategy, but it’s a disciplined and measured way of expanding our presence where we need to be, and we’re very happy with that,” Kedia said.

The bank may seek complementary acquisitions, but otherwise will focus on internal, organic growth, Cecere said.

“We will not base our strategy on a large or even small or medium-sized business at the moment,” he said.

Shailesh Kotwal, vice-chairman of the bank’s payments services division, noted that executives in the payments business were happy with the lender’s offering.

Despite it, “The unpredictable thing is that technology is evolving so quickly,” and the bank may need to reassess its situation, he said.

“In two years, there could be something on the market that is mind-blowingly great,” Kotwal said.

The story that US Bank told on Thursday was “compelling,” said Oppenheimer analyst Chris Kotowski, but doubted whether it was also “convincing.”

While there is “no doubt that USB has an incredibly durable and valuable franchise in its core business,” it is “interesting to think about the future fate of banks like USB,” Kotowski wrote. “We doubt that other players without significant branch networks can make much progress in USB’s markets, but we equally doubt that USB will make significant progress in the parts of the country where they are not present.”

Siefers summed it up similarly: “From now on, theory must be put into practice.”