U.S. Bancorp Expands Alternative Investments Business With AIS Acquisition

By Trefis Team,

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One thing that is clear from U.S. Bancorp's ( USB ) decision to acquire AIS Fund Administration is that the bank earnestly believes it will be able to replicate its success in traditional banking functions in its alternative investment administration business too. Considering the fact that asset management firms like BlackRock ( BLK ) and State Street ( STT ) have reported steep growth in demand for alternative investment funds over recent years, a boost in the size of alternative investment assets is definitely not going to hurt U.S. Bancorp in our view given its history of risk management and strong financial controls.

We maintain a $35 price estimate for U.S. Bancorp's stock , which is around 10% ahead of its current market price.

See our complete analysis for U.S. Bancorp

U.S. Bancorp is widely reputed for its risk-averse business model with the bank focusing almost entirely on traditional banking services for its revenue. As is evident from the chart above, traditional consumer & corporate banking operations contribute to almost 90% of the bank's estimated value according to our analysis.

But U.S. Bancorp is also not the one to shy away from growth opportunities as long as its overall risk profile is maintained - something that helped it turn towards the competitive wealth management business. The low-margin business is also characterized by risks comparable to other traditional banking businesses. Interestingly, as is evident from the decline in assets under management in the chart below, U.S. Bancorp hasn't really focused much on this business - letting the industry-wide forces at large governing the unit instead. Until now, that is.

The business is expected to shift into high gear soon as U.S. Bancorp starts integrating the newly acquired AIS Fund Administration to its existing fund services business. The acquisition will double U.S. Bancorp's alternative investment assets from $25 billion to $50 billion, allowing the bank to cash-in on the growing demand for the asset class.

With respect to the overall value for U.S. Bank, however, the deal does little primarily due to the small share of the wealth management business. The impact can nonetheless be understood by increasing the assets under management size in the chart above.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BK , BLK , C , STT , USB

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