US bank buys West Coast MUFG Union Bank for $ 8 billion

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US Bancorp finally joined the latest wave of banking industry mergers on Tuesday by agreeing to an $ 8 billion deal for the consumer operations of MUFG Union Bank, the main segment of US operations for Japan’s largest bank.

The purchase will increase US Bank’s loans and deposits by about 20% and give it a much larger presence on the West Coast, particularly in California where it will drop from 10th to 5th place in market share.

And the deal came with a surprise announcement from senior executives at the US bank. Unlike the large-scale downsizing that accompanies most business mergers, they said there would be no layoffs of frontline workers at MUFG Union branches.

“There are labor shortages in many industries and levels of attrition are higher in the banking industry,” said Andy Cecere, managing director of US Bancorp. “Retaining employees is the right thing to do. It’s also important because frontline branch employees are the ones who work most directly with customers.”

While about 80% of MUFG Union branches are within 3 miles of a U.S. bank branch, executives said they expected there to be plenty of opportunities for branch employees. , even if some sites are eventually merged or closed.

“We will not leave any market or reduce the availability of branches or banking services in low and moderate income neighborhoods,” said Terry Dolan, chief financial officer of US Bank.

This is the Minneapolis-based banking firm’s largest transaction since 2001, when it merged with Milwaukee-based Firstar Corp. in a $ 21 billion deal to become the one of the 10 largest banks in the country. It is also the first purchase of another banking transaction by US Bank since 2014, when it purchased Charter One branches in Chicago.

Formed by dozens of mergers when regulatory changes in the 1990s sparked consolidation, US Bank is today the nation’s No.5 bank with $ 558 billion in assets. But so far it has been on the sidelines of the wave of multi-year transactions shaped by new competitive pressures in the banking industry.

“I think a lot of investors were waiting to see them do something,” said Scott Siefers, banking industry analyst at Piper Sandler in Minneapolis. “USB is a very logical acquirer. They have a good track record and they certainly have the merit to do something. “

Discussing the deal, US Bank and MUFG executives stressed that banks need to scale up to develop digital services and spread costs across a larger customer and asset base.

“Scale is bigger than it has ever been in banking,” said Cecere. “The ability to invest in technology capabilities, digital services, customer experience, everything is critically important. Banks are not only competing with banks, but they are also competing with technology platforms. and fintech players. “

US Bank will support approximately 1 million personal customers and 190,000 small businesses with MUFG Union. It will add $ 58 billion in loans to a base of $ 294 billion. It also gets $ 90 billion in deposits, growing its base by $ 429 billion.

For Mitsubishi UFG, Japan’s largest bank with more than $ 3 trillion in assets, the sale marks its exit from US retail banking. It joins other major global banks, including the Spanish BBVA and the Hong Kong-based HSBC, which this year decided to leave American consumer activities to American banks.

His San Francisco-based company MUFG Union had assets of $ 133 billion and about 300 branches in California, Oregon and Washington. But Japanese leaders decided that was not enough to remain competitive in the United States. Morito Emi, general manager of corporate planning at its Tokyo headquarters, told reporters on Tuesday: “We cannot be successful without a certain scale of activity.”

The U.S. bank will pay MUFG $ 5.5 billion in cash and 44 million of its shares, which were worth $ 2.45 billion at Monday’s closing price of $ 55.68. Once the deal is concluded, MUFG will own an almost 3% stake in US Bancorp.

US Bank acquired a debt service business from MUFG Union last year and also provides merchant processing services to MUFG Union. Cecere said executives of the two companies had been discussing a deal for several months.

“For their customers, they have recognized that we have a great set of products and services,” said Cecere. “Because of our size, we just have more capabilities than it would take them time to develop.”

Federal regulators cited loopholes in MUFG Union’s technological security on Monday, and the company agreed to operate under a consent order with the Office of the Comptroller of the Currency.

The pandemic and recession of last year caused the number of transactions in the banking sector to fall by more than half, both in volume and in value. However, last year’s transactions included one of Minnesota’s best-known banking brands, TCF, which was acquired by Huntington Bancshares Inc. of Ohio. to US Bancorp in size – from US banks to BBVA.

“Everyone is trying to figure out what scale means in this industry,” Siefers said. “You have this unique situation where customer behavior migrates very, very quickly to a digital world, but banks are still supposed to have significant footprints on the ground in the form of branches. There is always a very high expectation of Customer Service. “

Reuters contributed to this report.


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