U.S. markets closed
  • S&P 500

    3,465.39
    +11.90 (+0.34%)
     
  • Dow 30

    28,335.57
    -28.09 (-0.10%)
     
  • Nasdaq

    11,548.28
    +42.28 (+0.37%)
     
  • Russell 2000

    1,640.50
    +10.25 (+0.63%)
     
  • Crude Oil

    39.78
    -0.86 (-2.12%)
     
  • Gold

    1,903.40
    -1.20 (-0.06%)
     
  • Silver

    24.70
    -0.01 (-0.04%)
     
  • EUR/USD

    1.1868
    +0.0042 (+0.36%)
     
  • 10-Yr Bond

    0.8410
    -0.0070 (-0.83%)
     
  • GBP/USD

    1.3038
    -0.0042 (-0.32%)
     
  • USD/JPY

    104.7200
    -0.1200 (-0.11%)
     
  • BTC-USD

    12,973.76
    +77.17 (+0.60%)
     
  • CMC Crypto 200

    260.05
    -1.40 (-0.54%)
     
  • FTSE 100

    5,860.28
    +74.63 (+1.29%)
     
  • Nikkei 225

    23,516.59
    +42.32 (+0.18%)
     

Elavon Financial Services DAC -- Moody's affirms U.S. Bancorp's ratings (A1 long-term senior unsecured), changes outlook to negative from stable

·17 mins read

Rating Action: Moody's affirms U.S. Bancorp's ratings (A1 long-term senior unsecured), changes outlook to negative from stable

Global Credit Research - 05 Aug 2020

New York, August 05, 2020 -- Moody's Investors Service (Moody's) has affirmed the ratings of U.S. Bancorp (USB) and its rated subsidiaries, including the group's main bank operating entity U.S. Bank National Association (USBNA), and Elavon Financial Services DAC. USB is rated A1 for long-term senior unsecured and subordinate debt.

Moody's has also affirmed the aa3 standalone baseline credit assessment (BCA) of USBNA as well as the bank's Aa1 long-term deposit rating and A1 long-term senior unsecured rating. The Aa2(cr)/Prime-1(cr) Counterparty Risk Assessments and the Aa3/Prime-1 Counterparty Risk Ratings of USBNA were also affirmed.

The rating outlooks on USB and its subsidiaries were changed to negative from stable. "The change in outlook reflects the bank's weaker capital position as it continues to face coronavirus pandemic challenges", said Rita Sahu, Vice President - Senior Credit Officer. "We expect the US economy will contract in 2020 and grow modestly in 2021 as a result of the coronavirus outbreak, which will likely have a direct negative impact on USB's and other US banks' asset quality, capitalization, and profitability. Because of USB's higher ratings relative to peers, its rating position is more sensitive to deterioration", Ms. Sahu added.

Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety.

List of affected ratings: Affirmations: ..Issuer: U.S. Bancorp

....LT Issuer Rating, Affirmed A1, Negative from Stable

....Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed A1, Negative from Stable

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed A1, Negative from Stable

....Senior Unsecured Shelf, Affirmed (P)A1

....Senior Unsecured Medium-Term Note Program, Affirmed (P)A1

....Subordinate Regular Bond/Debenture, Affirmed A1

....Subordinate Shelf, Affirmed (P)A1

....Subordinate Medium-Term Note Program, Affirmed (P)A1

....Junior Subordinate Shelf, Affirmed (P)A2

....Pref. Shelf, Affirmed (P)A2

....Pref. Stock Non-cumulative, Affirmed A3(hyb)

....Pref. Shelf Non-cumulative, Affirmed (P)A3

....Commercial Paper, Affirmed P-1

..Issuer: U.S. Bank National Association

....Adjusted Baseline Credit Assessment, Affirmed aa3

....Baseline Credit Assessment, Affirmed aa3

....LT Counterparty Risk Assessment, Affirmed Aa2(cr)

....ST Counterparty Risk Assessment, Affirmed P-1(cr)

....LT Counterparty Risk Rating (Local Currency), Affirmed Aa3

....ST Counterparty Risk Rating (Local Currency), Affirmed P-1

....LT Counterparty Risk Rating (Foreign Currency), Affirmed Aa3

....ST Counterparty Risk Rating (Foreign Currency), Affirmed P-1

....LT Issuer Rating, Affirmed A1, Negative from Stable

....LT Bank Deposits, Affirmed Aa1, Negative from Stable

....ST Bank Deposits, Affirmed P-1

....Senior Unsecured Bank Note Program, Affirmed (P)A1

....Subordinate Bank Note Program, Affirmed (P)A1

....ST Bank Note Program, Affirmed (P)P-1

....Commercial Paper, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed A1, Negative from Stable

..Issuer: U.S. Bancorp (Old)

....Backed Subordinate Regular Bond/Debenture, Affirmed A1

..Issuer: Firstar Realty LLC

....Pref. Stock Non-cumulative, Affirmed A3(hyb)

..Issuer: Elavon Financial Services DAC

....Backed LT Issuer Rating, Affirmed A1, Negative from Stable

....Backed ST Issuer Rating, Affirmed P-1

....Backed LT Bank Deposits, Affirmed Aa2, Negative from Stable

....Backed ST Bank Deposits, Affirmed P-1

..Issuer: USB Capital IX

....Pref. Stock Non-cumulative, Affirmed A3(hyb)

..Issuer: USB Realty Corp.

....Pref. Stock Non-cumulative, Affirmed A3(hyb)

..Issuer: U.S. Bank National Association, Canada Br.

....Commercial Paper, Affirmed P-1

Outlook Actions:

..Issuer: U.S. Bancorp

....Outlook, Changed To Negative From Stable

..Issuer: U.S. Bank National Association

....Outlook, Changed To Negative From Stable

..Issuer: Elavon Financial Services DAC

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

The affirmation of USBNA's aa3 BCA, which is the highest among rated banks globally, reflects Moody's overall unchanged view of USB's fundamental credit strengths. These include good business and geographic diversification, which has supported strong and above-peer average profitability over the long-term, a solid asset quality record and conservative risk appetite, and robust liquidity. The BCA also incorporates USB's weaker capitalization relative to US peers, though the rating agency expects USB's capital will be resilient under stress.

USB's profitability benefits from its significant presence in several high profit margin businesses beyond its core branch-based retail and commercial banking operations, including consumer and commercial credit cards, global corporate trust, fund services, and payment processing. This has led to a strong through-the-cycle asset quality record and solid earnings. However, the rating agency believes that some of the factors that have contributed to USB's superior operating efficiency have been reduced by strengthening competition and more challenging operating conditions. Despite this modest reduction in USB's competitive advantage, the bank remains comparatively well-positioned to compete on price while remaining conservative in its underwriting and risk appetite.

The change in outlook to negative from stable was driven by Moody's view that USB's weaker capitalization relative to most peers, combined with the uncertain operating environment resulting from the potential broadening and lengthening of the coronavirus pandemic could narrow the balance sheet strengths and profitability gap with its US peers; many of these peers have BCAs that are two or more notches below USB's aa3. USB entered the period of the coronavirus pandemic with a lower capital position relative to most peers, as measured by a tangible common equity of 8.2% as of 31 March 2020, corresponding to a common equity tier 1 (CET1) ratio of 9.0% (or 8.6% with the full implementation of the Current Expected Credit Loss (CECL) standard), as of the same reporting date. The bank's CET1 ratio was unchanged at 9.0% (8.7% with the full implementation of CECL) at 30 June 2020.

Although it has exhibited solid pre-provision earnings power during the first six months of 2020, the rating agency expects that USB's profitability will be pressured by lower revenues from low interest rates and reduced business activity, and higher credit provisions over the next 12-18 months. This will likely result in reduced internal capital generation capacity.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact of the breadth and severity of the shock, and the deterioration in credit quality it has triggered.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicates that rating upgrades are unlikely over the next 12-18 months, given the deteriorating economic environment and its uncertain duration. The outlook could return to stable if the company strengthens its capitalization over the outlook period, and if Moody's observes that USB's performance in asset quality, capitalization, and profitability proves more resilient than peers. A stable outlook could also result from Moody's assessment that the risks associated with the coronavirus pandemic outbreak have abated, leading to an improvement in operating conditions that support USB's pre-pandemic credit strengths of high earnings and low credit costs.

The BCA and ratings could be downgraded if capitalization weakens and if Moody's observes that USB's performance is not significantly better than its lower rated peers under the weaker operating environment. This includes exhibiting strength in preprovision profitability and lower credit costs than peers. Additionally, a perceived weakening in USB's risk profile, for example, resulting from an increase in concentration risk or evidence of a significant control failure could also lead to rating pressure.

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Rita Sahu, CFA VP - Senior Credit Officer Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​​​​​