U.S. Bank has low-cost funding
U.S. Bank (USB) has one of the lowest costs of funding in the banking sector. Among other large banks, only Wells Fargo (WFC) is placed as well as U.S. Bank. Other banks—like JPMorgan Chase (JPM) and Bank of America (BAC)—didn’t perform as well as U.S. Bank in this aspect.
Low funding costs in retail and debt segments
For a bank, there are two primary funding sources. The first funding source is deposits. Earlier in this series, we discussed that U.S. Bank is well placed in sourcing deposits. The second funding source is funding through debts. U.S. Bank is well placed in funding through debts.
The above chart shows that U.S. Bank has the best-rated debt in the sector. This makes accessing debt easier. The debt raised also comes at a lower cost. This is good for the bank in many ways.
Low-cost funding is a strategic advantage for U.S. Bank
Low-cost funding helps U.S. Bank maintain better net interest margins. It also helps the bank cushion shocks better when loan rates fall. As a result, low-cost funding gives the bank a strong competitive advantage.
Continued strong earnings and a few strong competitive advantages make U.S. Bank one of the best banks in any portfolio of stocks—like the Financial Select Sector SPDR (XLF).
Consensus analysts’ estimates indicate that U.S. Bank will report an earnings per share, or EPS, of $0.76 in 1Q15. The range of estimates is $0.75–$0.78. Right now, U.S. Bank is well placed to meet these expectations. However, these are early estimates. The estimates could change in the coming months.
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