Talk to anyone in the bank industry and they'll tell you the same thing: U.S. Bancorp's (NYSE:USB) Richard Davis is one of a kind. Not only is he highly respected for the type of person that he is, but also for what he brought to the table during his decade at the top of U.S. Bancorp. Listen in to this segment of Industry Focus: Financials, where we discuss what makes Davis one of the best bankers of the modern era.
A full transcript follows the video.
This video was recorded on Aug. 7, 2017.
Gaby Lapera: The bank is really well managed. Which actually leads us perfectly into our next person, which is Richard Davis, who has really shown us that great banks are really efficient. And the reason that Richard Davis kind of stands out is, he's not about cutting expenses. He thinks, if you need to spend money to have a really good underwriting program, then you spend money to have a really good underwriting program. Where he tries to improve things is bringing in more money.
John Maxfield: Right. Full disclosure, I'm a huge fan of Richard Davis, and he's been incredibly kind to me with his time and his knowledge over the past couple years. Of anyone that I've interacted with, he's probably taught me more about banking than anybody. There's a number of different things that he's taught me. The first is, driving efficiency at a bank is really important, because every bank has to earn a certain return on equity. If you're inefficient, if your costs are too high relative to your revenue, in order to earn that profitability that investors expect, you have to cut corners elsewhere. And where banks go to cut corners is their underwriting policy. Because fundamentally, what banks do is they sell money. And anybody wants to buy money so long as the price is right. If you go out and sell people money, make them loans to people who either shouldn't be having those loans, or the terms are too easy or the interest rate, i.e. the price, is too low, you're going to set yourself up for literally failure when the United States goes through, again, to go back to the very beginning, one of these 17 crises that we've gone through over the years, you're going to set yourself up for failure.
Well, Richard Davis, he understands this in a very fundamental way. He understands how important it is to run an efficient bank. What is so unique about Richard Davis and the way they run U.S. Bancorp -- and Richard Davis is now the chairman of U.S. Bancorp, he retired earlier this year. A guy by the name of Andy Cecere, it looks to me like he's running the bank in a very similar way to Richard Davis, which shouldn't be surprising because it looks like he was Davis' understudy at U.S. Bancorp. One of the things that Richard Davis has always said is, "The way to drive efficiency is not to reduce expenses on the bottom line," because what you're trying to do is widen that margin between revenue and expenses, "the way to do it, you drive efficiency through higher revenue." And it's just such a great way to think about banking that, whether you're a bank investor or a banker themselves, it's a great way to approach the profession.
Lapera: Yeah. His core message, when you think about it, is, never lower your standards.
Maxfield: That's exactly right. Another point he has made is that, in the wake of the financial crisis, investors are particularly discerning of banks. We saw Citigroup almost go under, we saw Bank of America almost go under. WaMu went under, Wachovia went under, National City went under. We had all these banks that ran into trouble, and investors are particularly discerning, it's fresh in their minds, they're very discerning. Another fundamental point, I call this Richard Davis' twin pillars of prudent and profitable banking. One is driving efficiency through revenue, and the second is focusing obsessively on your credit score. U.S. Bancorp has the top credit score in the entire bank industry in the United States, and that gives it enormous advantages, and it signals to investors that this is an incredibly well-run bank.