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TWST: Give us your overview and outlook for the regional banks group. What are your expectations for them in 2001?

Ms. Thompson: The banks in the superregional group are fighting battles on a number of fronts. As with any competition, there will be winners and losers, but in the near term these banks face many of the same challenges. First, there is the battle to grow revenues. Competition in the traditional banking business has become more intense over the past few years. Today, not only do banks compete against each other, but also against a diverse range of financial services companies including brokers and asset managers. Loan growth has been slowing — by nature and also by nurture. A slowing economy means slower demand and banks, in the face of the slowing economy, are pulling back on lending activities as a defensive measure. Also, we are seeing a cyclical slowdown in some of the nontraditional banking businesses that have helped support revenue growth over the past few years, such as credit cards and auto leasing. There are cultural issues that have limited the growth potential in other nontraditional bank businesses, such as asset management and investment banking. A number of banks have not only had difficulty integrating acquisitions in these high-growth business lines, but have been challenged to retain talent once the acquisitions are completed. The second battle banks are fighting is on the efficiency front. Over the past several years, the industry has seen a meaningful improvement in bank efficiency ratios. However, efficiency improvements are more difficult to come by these days. Many high profile restructuring efforts over the past couple of years have already been completed. There are also fewer mergers occurring in the industry, which means fewer opportunities to extract cost synergies. The mergers that are taking place are being done at more rational pricing levels, based on more reasonable assumptions for potential cost savings. And while there is still room to bring down bloated efficiency ratios in the retail banking business lines, investment spending needs will likely offset a good part of any potential savings.

TWST: You also follow U.S. Bancorp. What should an investor anticipate from that company over 2001?

Ms. Thompson: U.S. Bancorp (NYSE:USB) is another stock that I believe is well positioned to be a long-term winner among the superregionals. Our EPS estimates this year and next are 1.8 and 2.05, and our price target is 27 a share. The U.S. Bancorp/Firstar merger should prove to be a very good combination. It’s a great complement of businesses. It adds to the Firstar franchise high-growth fee businesses such as Piper Jaffray and payment processing and allows the Firstar management team to go in and work their magic on what was frankly an underutilized retail franchise at U.S. Bancorp. One of the real benefits of this merger to Firstar is that it significantly diversifies the bank’s revenue stream, which had traditionally been skewed toward retail banking. Before the merger, revenues from retail banking contributed 60% of total revenues. We estimate that this business line will contribute 40% of the combined companies’ revenues. Investors have been concerned because revenue growth in the past two quarters has not been as high we had come to expect from the old Firstar, but it’s only a matter of time before we see consistent top-line-driven, high-single-digit revenue growth from the company.