US Bancorp Whistling Through The Graveyard

US Bancorp (USB) released their results on the same day as Citigroup(C) Everyone knew the Citigroup news would be tough to swallow and would dominate the financial news. So lets take a look at some of the finer points that US Bancorp has put out.

U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis indicated in his remarks that "During 2007, we returned 111 percent of earnings to shareholders in the form of dividends and share buybacks." This coming from the head of a financial institution. Investors who are receiving 111% of earnings need to scrutinize the arithmetic and financial engineering implications. The phrase sounds good at first but when you think about it is this really good that you are taking more out of the pot than is being earned? Eventually this will come back to haunt you.

He went on to say "Our Company’s credit quality remains sound. Both net charge-offs and nonperforming assets increased during the fourth quarter, but the growth was moderate and as expected. We will not be immune to the current stress in the residential real estate markets and mortgage-related industries, but given the Company’s overall credit risk profile, increases in net charge-offs and nonperforming assets in the coming year will be manageable."

While no one is putting this company into the problem category of some other high profile disasters you need to take the comment with a grain of salt. When you are returning 111% of earnings in a deteriorating environment you need to scrutinize the loan loss provisions carefully. The loan loss provisions and write offs are climbing exponentially.

This is not the environment to come to shareholders and make the case for returns of 111% of earnings however that was achieved.