U.S. Bank’s $8B deal to buy Union Bank could make it region’s biggest banking company
Editor’s Note: This article was originally posted Sept. 21 and updated Sept. 23 with more reporting about the pending bank merger.
Union Bank’s 29-branch network in the Tri-Counties will become part of U.S. Bank in an $8 billion deal that will give Union Bank’s Japanese parent a nearly 3% stake in Minneapolis-based U.S. Bancorp.
In a deal announced before the markets opened on Sept. 21, U.S. Bank said it was acquiring all of Union’s branches in California, Oregon and Washington, including loans of about $58 billion and deposits of around $90 billion.
Union’s parent, Japanese banking giant Mitsubishi UFJ Financial Group, will receive $5.5 billion in cash and 44 million shares of stock, amounting to a 2.9% stake in U.S. Bancorp.
U.S. Bank already has 20 branches in the Tri-Counties, and the acquisition will combine the No. 4 and No. 5 largest banking operations in the region. U.S. Bank will emerge with a branch network that makes it a clear rival to JPMorgan Chase and Wells Fargo, the top two banks in the region with more than 40 branches each.
“This puts U.S. Bank right up there with the other big players in the California market, and it gives them a great presence on the Central Coast,” said Carrol Pruett, a former CEO at Mid-State Bank & Trust and the architect of that bank’s sale to Rabobank in 2006.
The transaction would likely make Mechanics Bank, which bought Rabobank’s 100 branches several years ago, a more attractive acquisition target, said Pruett, who served as CEO of the Arroyo Grande-based community bank from 1967 to 2000.
“I suspect this is good news for Mechanics and Ford Financial (Mechanics Bank’s majority owner) as this could lead to another national firm wanting to gain a big presence in California,” Pruett said.
Union Bank gained a big footprint in the Tri-Counties in 2012, when it bought the parent company of Santa Barbara Bank & Trust from Ford Financial for $1.5 billion. If U.S. Bank keeps all of the region’s Union Bank branches open, the combined company will have 49 branches in Ventura, Santa Barbara and San Luis Obispo counties. The 29 Union Bank branches in the region stretch from Atascadero in the north to Simi Valley and Thousand Oaks in the south.
Peter Rupert, a UC Santa Barbara economics professor and the director of the UCSB Economic Forecast Project, said he thinks the deal will be a big boost for California as well as the Central Coast. U.S. Bank will have more resources and is “very invested in California, and I assume that will carry over to Santa Barbara as well,” Rupert told the Business Times.
U.S. Bank said the acquisition will enable it to offer improved technology to Union Bank’s 1 million customers and that it expects to offer a combination of online and in-person services across former Union Bank areas. It said it expects to retain all of Union’s current customer-facing employees. MUFG’s global and corporate operations and some back-office functions are not included in the transaction, a statement said.
The transaction has been approved by both boards but it is subject to regulatory approval, including resolving issues raised in a consent decree between Union’s parent company and the Office of the Comptroller of the Currency. U.S. Bank said it expects to resolve those issues and close the transaction in the first half of 2022.
U.S. Bank CFO Terrance Dolan said the company is committed to keeping front-line employees at Union Bank’s branches.
“In today’s environment, when you think about hiring — the attrition that exists within a branch network and the need to be able to hire employees, retaining all the front office branch-related customer-facing employees, we think is the right decision,” Dolan said in a Sept. 21 conference call about the deal.
U.S. Bancorp “will not be exiting any markets or reducing availability to branches or banking services in any low- and moderate-income neighborhoods,” Dolan said.
About 80% of Union Bank branches are within three miles of a U.S. Bank branch, U.S. Bank CEO Andy Cecere said in the conference call.
The acquisition of Union Bank increases U.S. Bancorp’s scale “at a time when scale is as important as it’s ever been for the industry, and it adds market share in demographically attractive California and other West Coast markets,” Cecere said. “We see significant opportunity to achieve cost synergies and leverage our broad product set and leading digital capabilities across the Union Bank platform to enhance our growth and return potential.”
The acquisition will add about 190,000 small business customers from Union Bank, which will increase the number of business banking relationships at U.S. Bank by about 18%, Cecere said.
Goldman Sachs & Co. LLC is serving as exclusive financial advisor on the acquisition and Simpson Thacher & Bartlett LLP is the legal advisor to U.S. Bancorp, U.S. Bank’s parent company.