Dive Brief:

• U.S. Bank is buying MUFG Union Bank in an approximately $8 billion cash-and-stock deal that is expected to close during the first half of 2022, the Minneapolis-based bank said in a press release Tuesday.
• The transaction would give U.S. Bank about 1 million new customers on the West Coast, and add $133 billion in assets, $58 billion in loans and $90 billion in deposits to its balance sheet, vaulting the bank back into fifth place among largest retail banks in the U.S. PNC has ranked fifth since acquiring BBVA's U.S. retail arm in an $11.6 billion deal, announced last November, that closed in June. 
• The acquisition marks the latest spinoff of a U.S. banking unit owned by a foreign company — in this case, the owner being Japanese automaker Mitsubishi. Britain's largest lender, HSBC, sold 80 of its U.S. branches to Citizens Bank in May, and 10 others to Los Angeles-based Cathay Bank.

Dive Insight:

The MUFG sale is not a surprise. Bloomberg reported as recently as Friday that Mitsubishi was considering selling its 305-branch U.S. presence.

The deal — the largest to be announced in the banking sector so far this calendar year — breaks down to $5.5 billion in cash and 44 million U.S. Bank shares, a price that represents 1.3 times MUFG's tangible book value. It would push U.S. Bank to about $664 billion in assets, according to The Wall Street Journal.

U.S. Bank expects to take on $1.2 billion in merger-related charges in the deal but to save about $900 million in annual expenses through consolidation of branch and real estate operations, technology and systems conversion and back-office efficiencies, the bank said in its press release.

The deal would also give U.S. Bank the fifth-largest deposit share among banks in California, up from 10th.

“The acquisition of MUFG Union Bank underscores our commitment to strengthen and grow our business on the West Coast, make investments to serve customers and local communities and enhance competition in the financial services industry," U.S. Bank CEO Andy Cecere said in a statement Tuesday. "We have a great deal of respect for the MUFG Union Bank team and share customer-centric and relationship-based strategies and cultures based on integrity."

The acquisition announcement came a day after the Office of the Comptroller of the Currency (OCC) cited MUFG Union Bank for failing to meet federal information technology security guidelines. The bank has “engaged in unsafe or unsound practices,” the regulator said in a cease-and-desist order and must create and implement an updated information security program. The bank also must hire and retain staff to support that upgrade, and its board must establish a compliance committee within the next month to monitor the bank’s improvements and meet at least quarterly.

U.S. Bank “evaluated and incorporated these regulatory concerns into all aspects of the deal process,” it said Tuesday. “The company believes it can successfully remediate the issues applicable to MUFG Union Bank in connection with the transaction, and that the order will not restrict U.S. Bancorp’s ability to operate and grow its business as planned.”

Cecere, in a call with reporters, said Tuesday the bank is "still looking at the other opportunities" to expand in the Southeast, Bloomberg reported.

“We are very pleased to have reached this agreement which will allow MUFG to focus and increase our resources on accelerating growth in our Americas wholesale businesses — specifically our corporate and investment banking, global markets, Japanese corporate banking and transaction banking businesses,” Kevin Cronin, MUFG Union Bank's CEO, said Tuesday.

To stay competitive, MUFG would have had to invest more heavily in new digital technology, Morito Emi, the bank's managing director for corporate planning, told a press briefing, according to Reuters.

This isn't the first deal between U.S. Bank and MUFG in the past several months. U.S. Bank agreed to purchase MUFG’s debt servicing and securities custody portfolio, which had around $320 billion in assets under management, in December 2020.

Mitsubishi Bank entered the U.S. retail market when it acquired the Bank of California in 1984. That entity merged with Union Bank in 1996. Mitsubishi UFJ Financial Group then bought the 35% of Union Bank that it didn't already own in 2008.

Despite abandoning its branch footprint, MUFG said the U.S.'s importance to the company remains "unchanged," according to the Financial Times. The company still owns a 20% stake in Morgan Stanley. The U.S. will account for about half of MUFG's global business outside Japan after the U.S. Bank deal closes, the publication reported.