Update: U.S. Bancorp

As of Sept. 30, 2022, USB's net unrealized losses on available-for-sale investment securities (fair value of $68.5 billion) were $9.2 billion owing to higher interest rates, compared with $722 million of net unrealized gains on Dec. 31, 2021. Over 50% of its securities are in a held-to-maturity portfolio ($85.5 billion amortized cost), which has declined roughly $11 billion in value. We don't think USB will need to sell any of these securities because we believe it has adequate liquidity to hold these securities until they mature. The negative outlook on USB and its operating subsidiaries reflects our view of the elevated risks associated with the acquisition of MUFG Union Bank over the next two years. Specifically, we consider in the

...On Dec. 1, U.S. Bancorp closed on its acquisition of MUFG Union Bank's core regional franchise. As a result, we raised our rating on MUFG Union Bank to '##-/A-1+' from 'A/A-1' and removed the ratings from CreditWatch, where we placed them with positive implications on Sept. 23, 2022 (see "MUFG Union Bank N.A. Upgraded To '##-' On Acquisition By U.S. Bancorp; Outlook Negative; MUFG Americas Ratings Withdrawn," Dec. 1, 2022). Notably, it's the largest acquisition USB has made since the financial crisis and could lead to heightened integration risk, a reduction in capital ratios, and loan concentration in California, contributing to our negative outlook. These issues are somewhat offset by expected expense and revenue synergies once the entity is integrated. USB may be required to hold additional debt pending the finalization of an advanced proposal for rule-making by regulators. This could result in USB needing to hold a yet to be specified amount of debt (our estimate is $10 billion-$15...

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