) --

U.S. Bancorp

(USB) - Get Report

CEO Richard Davis has big plans for 2011.

Davis -- one of


10 Best Industry-Loved Bank CEOs of 2010

-- told


Maria Woehr that the banking industry is likely to make a turnaround and U.S. Bancorp is in position to become a leader in the industry.

10 Best Industry-Loved Bank CEOs of 2010 >>

In this Q&A Davis dicusses what he believes will be the outcome of the stress tests, regulation, M&A, dividend raises and why investors will return to investing in banks in 2011.


: What has been the most challenging hurdle this year?

Richard Davis

: Keeping the momentum on what is going right.

As you know, regulatory and legislative activities have been working primarily against banks. A lot of those are negatively biased against banks as they relate to profitability and some of the shareholder issues that we face everyday.

But, by and large, the majority of the bank is doing great. Everything is on track for this recovery. We are growing the company, and all of the new lines of businesses are doing well.

For me, the biggest challenge is trying to separate the distraction factor of all of the regulatory and legislative things that I want the senior management team to be focused on while protecting the over 60,000 employees and letting them be excited.


: What should investors expect from your bank this year?


: I think they should be pretty satisfied so far with our investments and our returns. I think the stock will end up between 15 and 20 percent this year.

It is my first and stated goal for our shareholders to return the dividend. We need to begin to start paying back their investment through the dividend and eventually through stock buybacks. I hope 2011 will give us permission to move forward on that basis.

What I think investors should like most about us is we are just basically old fashioned. We are still making a great deal of money based on investments. We are making use of the balance sheet. We are making use of fee-income businesses, and if they like what they see, there will just be more of it because we are kind of growing in an old fashioned trajectory now.


: Do you hope to do acquisitions this year?


: You know it is not a hope. If something comes along, like it has in the last few years that is advantageous to our company, absolutely we will make an acquisition. But our strategy doesn't have acquisitions as part of it. So if we don't do an acquisition, it is not like we will fail because that is not how we want to grow the company.

We want to grow it in an organic, sustainable, repeatable way. But if an opportunity comes along I will not miss that.


: You did one

an acquisition recently with

Bank of America

(BAC) - Get Report

. How does that play into your strategy?


: We have a very substantial corporate trust business. My guess is that wasn't a core business for them. So our opportunity is to bring it and fold it into our own line of business and gain scale, impose our quality measures and in this case it actually gave us a beachhead in Europe for the first time in corporate trust.

About 15 percent of that transaction is domiciled in London and Ireland and it gives us an opportunity to expand our trust leadership domestically and perhaps do more of that internationally. It is not a traditional bank deal, but it is one of our strong competencies which is corporate trust.

The other acquisition that was important is in out payment businesses. We have a recent partnership in Brazil by acquiring a merchant and we have done similar transations in other parts of the world. Our payment business will continue to grow globally. I think that along with corporate trust will make us a little unique in our diversified earnings and in our acquisition strategy.


: You are talking about the payment business with


(B) - Get Report

in Brazil?


: Correct.


: You mentioned that this business lets you head into Europe. There is also a lot of European banks that will be selling assets as well.


: I believe so. If that is the case now than we have the opportunity to evaluate corporate trust businesses in Europe. This gives us the opportunity to look at other acquitions. So we didn't go over there on our own we are going over there with this transaction. We will use it as a starting point to see whether we can expand further. We are committed to doing business on the servicing side for both payments and for trust businesses, but I am also committed to not being a balance sheet lender or deposit gatherer outside of America.


: The stress tests are coming up in January. How do you think your bank will do?


: Well, I think we were known to do best of all in the last stress test back in April of 2009. So I expect us to be in the top of class again.

It is really a capital assessment plan and the stress test is only part of it. Stress testing will be here for the rest of my career because it is still a capital assessment. As it relates to capital, I think it is the right thing to do.


: What are your expectation for the banking industry this year?


: I have very high expectations.

It is going to become a recovery, and banks will be at the center of that. Banks have been evaluated as the center of the downturn and now I think we will be equally responsible on the way out.

I expect us to do a better job of voicing our position and becoming more important to the recovery itself. Working with both the administration and Congress and working with each other to stake our claim as the only industry really that can help this recovery have the kind of speed and trajectory it deserves.

The banks are healthy and people are excited about investing in them again, and investors feel good enough about stock price and dividend to make a return. That capital becomes the engine that helps banks move forward. Banks will become much more involved in the recovery.

--Written by Maria Woehr in New York.

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