Troubled Banks Weigh on U.S. Bancorp

U.S. Bancorp (USB Quote) missed Wall Street's third-quarter estimates Tuesday, as sliding profits were hit by an increased loan-loss cushion and losses tied to securities.

U.S. Bancorp reported third-quarter net income of $576 million, or 32 cents per diluted common share, missing the Thomson Reuters consensus estimate of 47 cents per share. The $247 billion Minneapolis-based holding company reported net income of $950 million last quarter and $1.1 billion in the third quarter of 2007.

Profits were impacted by $411 million in securities losses and an increase in the quarterly provision for loan loss reserves, to $748 million, from $596 million last quarter and $199 million in September 2008.

U.S. Bancorp shares were relatively flat Tuesday after the financial report, trading down fractionally to $31.14.

During its earnings conference call CFO Andrew Cecere said U.S. Bancorp lost $97 million on preferred shares in Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote). Last week, federal bank regulators announced an important accounting change regarding losses tied to the government takeover of the mortgage giants.

Securities losses also included $42 million in impairment charges on other mortgage-backed securities held for sale, as well as $25 million on securities tied to the failed Washington Mutual (whose deposits were acquired by JPMorgan Chase (JPM Quote)) and $20 million from the bankruptcy of Lehman Brothers.

More positive aspects of the company's earnings performance included an increase in net interest income of 3.1% from the second quarter and 16.7% year over year, as the company expanded its loan portfolio 14% and improved its net interest margin.