There is one regional bank that stands above its peers in both size and scope. It operates well outside its region of origin, operating over 3,000 branches and 5,000 ATMs in 25 states. It is in the top 10 for total assets, trailing only banking behemoths and investment houses. Finally, it is a favorite of numerous "super investors," including one with a great history of making the right decisions. That bank is U.S. Bancorp (NYSE:USB).
Based on total assets, U.S. Bancorp is far behind the so-called "too big to fail" banks like JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, and I personally think at least one of these four banks will split traditional banking and investment banking before the end of the year. This would open the door for U.S. Bancorp to make a move further up the banking rungs, though it will be difficult to do so without substantially growing its total assets. I think it will be very difficult to get to this point without a dedicated investing bank segment, but U.S. Bancorp could potentially use a smart acquisition or two to grow its asset base if it truly wanted to compete with the big boys of banking.
What could this look like?
As a thought exercise, and not speculation of what will actually happen, I will present two acquisition/merger scenarios for U.S. Bancorp that could assist it in adding assets. One scenario will look at banks located in the Midwest region, where U.S. Bancorp is located, helping the bank grow in its home region. The other scenario will focus on banks in other regions, which will either expand the bank's reach further or strengthen its position in markets it already serves. In this little experiment, I will be disregarding the costs associated with an actual merger, if only to illustrate how difficult it would be for U.S. Bancorp to acquire its way to assets on the level of the four largest banks.
With that, here's how these fictional scenarios could play out.
The Midwest banks
When compared to U.S. Bancorp, the other regional banks in the Midwest region are pretty small. The next two largest banks, Fifth Third Bancorp (NASDAQ:FITB) and Northern Trust (NASDAQ:NTRS), would only add $121.9 billion and $97.5 billion, respectively, not quite allowing them to reach the levels of Wells Fargo. It would be an improvement nonetheless, and this combined entity would have just over $570 billion in total assets. Not spectacular, but impressive nonetheless.
Outside the Midwest
If the search is expanded beyond the Midwest region, lots of possibilities emerge. Acquiring SunTrust (NYSE:STI) would add $173.4 billion in assets to the balance sheet, as well as expand U.S. Bancorp's reach to the Southeast United States. Adding M&T Bank (NYSE:MTB) would add $83 billion in total assets, as well as extend U.S. Bancorp into New England because of M&T Bank's acquisition of Hudson City Bancorp last year. This combined entity would have over $610 billion in total assets, still far behind Wells Fargo and its $1.4 trillion in total assets.
What this all means
Going into this, I truly thought U.S. Bancorp could somehow approach the total assets of the four largest banks without much difficulty simply by acquiring other banks. Instead, this silly experiment further backed up my belief that the megabanks are entirely too big in their present state. The "smallest" of the four, Wells Fargo, still has over four times the amount of total assets that U.S. Bancorp does, and the discrepancy gets even larger as you move further up the list. Because it will be so difficult for U.S. Bancorp to join the ranks of "too big to fail," I think it should simply continue doing what it does and be the best regional bank in the country.