U.S. Bancorp's Past
...before we look at its present and future
by Jeff Fischer (TMFJeff@aol.com)


ALEXANDRIA, VA (August 20, 1998) --A wallflower at a high school dance, U.S. Bancorp (NYSE: USB) was eyeing Wells Fargo as a potential dancing partner for too long. While USB contemplated, Norwest built up its courage and stepped to the plate. The rest is (becoming) history. Norwest is merging with Wells Fargo, while U.S. Bancorp is left leaning against the wall looking for another partner. It shouldn't be tremendously difficult for U.S. Bancorp to find a new date, however. The company has made more than 24 acquisitions since 1990.

The surprise merger of Wells Fargo and Norwest (many industry watchers expected Wells Fargo to pair with USB instead) is just one more story to add to the long and varied history of U.S. Bancorp. In fact, the big story from 1997 was the merger of First Bank Systems with U.S. Bancorp. This doubled USB's employees last year (to nearly 26,000), and the combined company had revenue of $6.9 billion compared to just $3.8 billion at the old U.S. Bancorp in 1996.

On August 1 of last year, First Bank System (FSB) acquired U.S. Bancorp and assumed the strong U.S. Bancorp name. The new firm is the 15th largest commercial bank holding company in the United States, and was (at the beginning of 1998) the 9th most valued bank holding company on the stock market when measured by market value. U.S. Bancorp, with tangible assets of $71.8 billion, has a market value of over $30 billion.

The company's history reaches back to the 1920s. It was "dusted" by the Dustbowl of the 1930s, lifted by the economic recovery of the 1940s, and grew during the strong agricultural market in the 1970s and 1980s (which was due to food-shortage scares and the need of the Communist world to buy grain from the U.S., which in turn caused farmers to use debt to finance increased production. You've probably figured by now: This company has done business with farmers in the past.)

So how did all this first come about?

A giant holding company, the First Bank Stock Investment Corp. (later FSB) was formed in 1929 by 85 Midwestern banks in order to defend itself against banks from out-of-state. This giant cooperative managed all of its members' assets under strict internal policy, which helped keep the business alive during the Great Depression (1929 was probably not the best year to organize a new business).

The holding company survived and recovered with the economy in the 1940s. In the 1950s, it was allowed to remain an ongoing entity (under a grandfather clause) even though the government passed legislation that outlawed multi-state bank holding companies. FSB grew as randomly as a weed in the 1960s and 1970s -- each individual bank did what it wished, though still working under FSB's wing. Finally, in 1985, the company began to divest itself of its smaller and less promising banks and merge with those it favored.

It wasn't, however, until this very decade that the company truly began to focus on much of what is now its current business. In 1990, John Grundhofer was hired from Wells Fargo to head FSB. He began consolidating the businesses that he liked, chopping the ones he didn't, cutting costs (his nickname is "Jack the Ripper"), and introducing logic and focus to what was before a sprawling, madly rampant business. In the process, he made the company one of the largest merchant-side processors of credit card transactions, and it became the largest corporate trust company in the U.S. when it bought BankAmerica.

The big enchilada, though, was served in 1997 when Jack and his FSB company bought U.S. Bancorp for $9 billion and assumed the company name. Adding hot sauce to the new enchilada, the company next bought Piper Jaffray Companies for $730 million, instantly giving it a leading securities business.

U.S. Bancorp is now a focused leader in credit card payment systems and commercial lending, mortgages, direct real estate lending and several finance activities for corporations. A strong majority of its earnings is interest income. We'll delve deeper into the specifics of the business on our next fly-by -- we're just "dusting crops right now, boy."

(Hey, name the movie that is paraphrased from.)

Dale provided perhaps the best review of U.S. Bancorp in the free world (and for free) in one comprehensive column on July 24. Be certain to read that in preparation for our continued look at U.S. Bancorp next week. On initial study, it's one of my favorites of our five finalists, giving Mellon a strong run for its money -- or, I should say, for our money.

P.S. Intel (Nasdaq: INTC) declined over $3 as a Merrill analyst downgraded it. This downgrade came from the same analyst who was looking for a price in the low $60s a few months ago. It's actually good to see the stock decline, whatever the funny reason, because we'll be buying more shares in the months ahead. Fool on!

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8/20 Close

Stock Close Change CPB $52 5/16 - 1/4 INTC $86 -3 9/16 JNJ $75 1/2 - 7/16
Day Month Year History Drip (2.02%) (0.08%) 12.27% (4.39%) S&P 500 (0.59%) (2.59%) 12.49% 14.74% Nasdaq (0.56%) (2.13%) 16.69% 14.97% Last Rec'd Total # Security In At Current 08/03/98 4.125 CPB $54.395 $52.313 07/01/98 9.724 INTC $80.239 $86.000 08/07/98 6.543 JNJ $70.138 $75.625 Last Rec'd Total # Security In At Value Change 08/03/98 4.125 CPB $224.38 $215.79 ($8.59) 07/01/98 9.724 INTC $780.21 $836.22 $56.01 08/07/98 6.543 JNJ $458.92 $494.81 $35.90 Base: $1800.00 Cash: $286.03** Total: $1832.86

The Drip Portfolio has been divided into 76.682 shares with an average purchase price of $23.474 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

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