Back to top

Image: Bigstock

Mitsubishi UFJ's (MUFG) U.S. Banking Arm Divesture Faces Delay

Read MoreHide Full Article

Mitsubishi UFJ Financial Group (MUFG - Free Report) recently announced that there will be a delay in the divesture of its U.S. banking business, MUFG Union Bank, to U.S. Bancorp (USB - Free Report) , announced earlier in September 2021.

The deal, expected to close in the first half of 2022, is now delayed and is anticipated to close in the second half of the year due to pending regulatory approval.

At the time of announcement, the cash-and-stock deal was valued at $8 billion. This included $5.5 billion in cash and 44 million shares of U.S. Bancorp. This would lead to MUFG getting a 2.9% stake in U.S. Bancorp. Apart from the deal value, the Japanese parent will get dividends or share repurchases worth $9.6 billion at MUFG Union Bank, bringing the total value of the transaction to $17.6 billion. The divesture is expected to result in MUFG recording a gain on sale of around ¥150 billion as extraordinary income in fiscal 2022, which would improve its common equity tier 1 ratio.

What’s Causing the Delay?

Regulatory approval has likely been delayed due to a backlog of increased bank-merger activities, President Biden's executive order calling for higher scrutiny by government agencies before approving bank mergers, and the pandemic-fueled staffing shortages.

Regulators have come under pressure to toughen merger-approval processes after President Biden issued an executive order in July 2021, directing regulators to make adjustments to the bank merger review process in an effort to promote more competition in financial services and other sectors.

Road Ahead

Earlier this month, U.S. Bancorp announced a five-year community benefits plan to build and support equitable access to capital for the communities it serves as part of the planned acquisition of MUFG Union Bank. The plan was developed in coordination with the National Community Reinvestment Coalition and the California Reinvestment Coalition. Given the company’s noble activities, we believe that the deal's chances of not receiving the green flag are narrow.

Shares of MUFG on the NYSE have gained 0.9% in the past six months against 8.7% decline of the industry.

Zacks Investment Research
Image Source: Zacks Investment Research

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While escalating political and regulatory scrutiny of large bank mergers and acquisitions might result in higher execution risk for future deals, it is not discouraging banks from consolidation activities.

Earlier, in April, Citizens Financial Group, Inc. (CFG - Free Report) completed the acquisition of Investors Bancorp, Inc. In July 2021, CFG announced that it would acquire Investors for $3.5 billion.

At the time of the deal announcement, it was decided that shareholders of Investors Bancorp would receive 0.297 of a share of Citizens Financial common stock and $1.46 in cash for each Investors’ share they owned. Accordingly, the former shareholders of Investors own 14% of the combined company.

In the same month, Valley National Bancorp (VLY - Free Report) completed the previously announced acquisition of Bank Leumi Le-Israel B.M.’s U.S. banking arm, Bank Leumi USA. The deal, announced in September 2021, will broaden Valley National’s commercial product offerings, and expand its technology and venture capital banking business.

Therefore, it will solidify VLY’s position as a top-tier, relationship-focused commercial bank. The pro-forma company, formed as a result of the merger, is the 29th largest publicly traded U.S. bank by assets.