Moody's Investor Services cut its rating on US Bancorp ( USB) and slapped a negative outlook on the Midwest bank over concerns about profitability and credit costs amid the weak economy. Moody's downgraded US Bancorp's senior debt by one notch to Aa3 from Aa2. The ratings agency also lowered its rating on the Minneapolis-based company's "bank financial strength" to B+ from A-. Moody's affirmed its ratings for long-term debt, short-term debt and deposits at U.S. Bancorp's bank subsidiaries. Following the rating changers, Moody's said its outlook for the company is negative. "
US Bancorp faces continued elevated credit costs and profitability pressures as the U.S. economy remains weak," Moody's said. The company will experience higher credit costs as a result of its real estate exposures and other consumer and commercial asset classes, it said. "These challenges could negatively impact US Bancorp's capital position in 2009," despite the bank's recent dividend cut, Moody's said. US Bancorp has also been rumored to be interested in returning the $6 billion in government bailout funds. Profit may also come under significant pressure if the economy weakens further, particularly from lower revenue in its fee businesses. Despite the negative rating actions, Moody's expects the company to keep its relatively high ratings when compared to other large banks. The rating agency said its confidence is due to US Bancorp's solid capital position, its limited exposure to troubling loan concentrations and its strong liquidity position, among other things.