US Bancorp's Double Opportunity

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Want to know where we are in the credit crisis? Well-run banks are a better indicator than those that are poorly run. US Bancorp (NYSE: USB) -- which falls in the former category -- reported earnings yesterday, so it's worth giving them the once-over.

The upshot: the banking industry isn't out of the woods yet. The credit crisis (insolvencies and a liquidity crunch) is pushing banks down toward the trough in the credit cycle (as the economy weakens, credit losses increase). Even a solid institution like US Bancorp isn't immune to that phenomenon -- all measures of credit quality deteriorated in the third quarter.

Market share won is twice as sweet market share created
It's not all bad news, though: As I mentioned in reviewing BB&T's (NYSE: BBT) earnings last week, strong banks can take market share in a crisis and US Bancorp appears to be doing just that, with average deposit growth and average loan growth of 12.1% and 12.9% year on year, respectively.

On another front, US Bancorp is considering participating in the Treasury's $250 billion recapitalization package. Is it because the bank is ailing and desperately needs the capital? No, the plan is to use the funds for acquisitions instead of simply propping up the balance sheet. That would be a smart move on the part of US Bancorp: Using cheap government funding for acquisitions in a distressed industry makes a lot of sense.

(Other sound lenders that have signaled the environment is right for M&A or that they will examine the government's capital infusion proposal include M&T Bank (NYSE: MTB) and PNC Financial Services (NYSE: PNC).)

Cheap funding for acquisitions – sign me up!
The Treasury is onboard with that plan. Although some naysayers will claim the government is doling out money to banks that don't need it, it's good policy on the Treasury's part in that it allows well-run banks -- instead the Treasury itself -- to ultimately allocate the capital. This promotes a free-market solution in which the most capable bankers make an economic decision regarding which of the weakened institutions are worth saving and which should simply be allowed to fail.

Personally, I prefer to see JPMorgan Chase (NYSE: JPM) absorbing Washington Mutual or Wells Fargo (NYSE: WFC) picking up Wachovia's (NYSE: WB) deposits, rather than having the target institutions placed under the tutelage of the Treasury department.

More Credit Crisis Foolishness:

• What To Do With Your Money Right Now
• You Have No More Excuses to Ignore These Stocks
• Which Bank Will Cut Its Dividend Next?
• Which Financials Will Survive and Thrive