U.S. Bancorp Likely Needs More Reserves

As I said in another piece on the banking sector, I’m reluctant to overly nitpick the reserve-building decisions that bank management teams are making, as they’re likely doing the best they can in an environment that could only charitably be called “murky.” Still, I think U.S. Bancorp (USB) may be pulling the Band-Aid a little too slowly, making it likely that further reserve additions will be necessary. On top of that, the bank’s payments business is getting hammered on the COVID-19 shutdowns, and the first quarter of results reported in the crisis weren’t great.

Sentiment was already a challenge for U.S. Bancorp and worries about whether there’s another shoe to drop with reserves won’t help. With a thinner capital cushion than at some of its peers/comps, I can understand why U.S. Bancorp shares would trade at a somewhat larger discount. While I do think U.S. Bancorp shares are now pricing in a forward outlook that is too bearish, I don’t like these shares as much on a relative basis to names like Bank of America (BAC), JPMorgan (JPM), or PNC (PNC).

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U.S. Bancorp Likely Needs More Reserves