One thing that is clear from U.S. Bancorp's (
) 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 (
) and State Street (
) 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
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
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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