What happened
US Bancorp (USB +0.40%) bounced back in June, rising 10.5% for the month after a couple of difficult months, according to S&P Global Market Intelligence. US Bancorp's stock was still down about 22% year to date, trading at around $33.65 per share as of July 5.
June was a solid month for the markets overall, as the S&P 500 was up 6.5%, the Dow Jones Industrial Average gained 4.6%, and the Nasdaq Composite jumped 6.6% in June.
So what
US Bancorp, the holding company for U.S. Bank, performed well in what was a good month for banks overall. The KBW Nasdaq Bank Index, which tracks the performance of large banks, was up about 5.3% in June.
NYSE: USB
Key Data Points
A primary catalyst for banks in general was the Federal Reserve Board's decision at its June 13-14 meeting not to raise interest rates. It was the first time since March 2022, including 10 straight rate hikes, that the Fed did not increase rates. The pause in rate hikes came after the inflation rate dropped to 4% in May. The steady decline in inflation toward the Fed's target of 2% signaled that its tightening is having the desired effect and it will monitor progress on inflation and the economy going forward.
This is good news for banks, as it suggests rate hikes are near their plateau. While rates will still remain elevated, banks should benefit from high interest income, an economy that is now projected to grow in 2023, not recede, and less pressure on deposit cost as rates plateau and eventually start coming down.
Now what
Another positive development for US Bancorp was its performance in the recent Federal Reserve stress test. It expects to have a capital buffer of 2.5% over the 4.5% minimum. With a common equity tier 1 (CET1) ratio of 8.5%, it is solidly above the regulatory minimum of 7%.
There had been some concern in the market about US Bancorp's capital buffers, more than perhaps other large banks, due to its recent acquisition of Union Bank from Mitsubishi UFJ Financial Group. The bank suspended its share repurchase program in the first quarter and maintains that stance as it continues to shore up its capital levels.
CEO Andy Cecere has said that he expects the CET1 ratio to grow to 9% as cost synergies are realized from the integration of Union Bank. US Bancorp is very cheap with a price-to-earnings ratio of 8.7 and it looks like a decent buy right now.
