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U.S. Bancorp (USB) Wraps Up Deal to Acquire MUFG Union Bank
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Last week, U.S. Bancorp (USB - Free Report) completed its acquisition of MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group (MUFG - Free Report) in a cash-cum-stock transaction. This will bolster U.S. Bancorp’s presence on the West Coast.
Under the terms of the deal, announced in September 2021, USB paid $5.5 billion in cash and issued almost 44 million shares of U.S. Bancorp common stock. At closure, MUFG holds a minority stake of roughly 3% in U.S. Bancorp.
The systems integration and account conversion will likely occur in the first half of 2023. Until this happens, MUFG Union Bank customers will continue to be served by their respective branches, website and mobile apps.
Notably, the deal doesn’t include MUFG Union Bank's Global Corporate & Investment Bank, some middle and back-office functions, and other assets.
Andy Cecere, chairman, president and CEO of USB, said, “The acquisition of MUFG Union Bank underscores U.S. Bank’s commitment to creating economic opportunities for our customers and communities across the West Coast.”
Following the completion of the deal, MUFG continues to be one of the largest foreign banks in the United States. Kevin Cronin, MUFG Americas CEO and Regional Executive, noted, “We are very pleased to bring the sale to completion, which enables MUFG to increase our focus and direct our resources on accelerating growth in our Americas wholesale businesses.”
Financial Benefits (At the Time of Deal Announcement)
Assuming a 75% synergy phase-in and 8% accretion to earnings when fully integrated, the transaction is expected to be 6% accretive to 2023 GAAP earnings for U.S. Bancorp. The deal is estimated to be dilutive to 2022 earnings (including PAA and with foregone share repurchases) in the low single-digit percentage, while over the medium term, it is projected to be accretive in the low single-digit percentage.
Additionally, U.S. Bancorp expects to achieve pre-tax cost synergies (40% of estimated non-interest expenses) of nearly $900 million via real estate consolidation, technology and systems conversion, and other back-office adequacies. Of these, 40-50% will be achieved in 2023 and the remaining in 2024. CET1 ratio is estimated to be 8.5% post the deal. Revenue synergies have been identified but not modeled.
Further, the transaction is expected to contribute approximately $310 million to pre-tax pre-provision net revenues in 2022 before considering cost synergies. USB expects $1.2 billion in merger charges, of which $950 million will be incurred in 2022.
Conclusion
U.S. Bancorp has made a number of strategic acquisitions in the past years, which have opened new markets to it and fortified existing markets. These acquisitions, combined with the ongoing investments in innovative product enhancements, services and people, strengthened the company’s balance sheet and fee-based businesses.
Over the past six months, shares of USB have lost 12.7% compared with 1.5% decline recorded by the industry.
Last week, New York Community Bancorp, Inc. (NYCB - Free Report) also completed its acquisition of Flagstar Bancorp, Inc. With this, the combined entity becomes the 24th largest regional bank (based on total assets) in the country. The deal was announced in April 2021.
The combined company will have a robust commercial banking platform, diverse revenue and earnings streams, an expansive retail banking network and preeminent ranking in several national business lines, including multi-family lending, residential mortgage origination and servicing, and warehouse lending.
Per NYCB management, “The merger creates a company with significant scale and capabilities with a more diversified loan portfolio, an improved funding mix, and a much better interest-rate risk profile."
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U.S. Bancorp (USB) Wraps Up Deal to Acquire MUFG Union Bank
Last week, U.S. Bancorp (USB - Free Report) completed its acquisition of MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group (MUFG - Free Report) in a cash-cum-stock transaction. This will bolster U.S. Bancorp’s presence on the West Coast.
Under the terms of the deal, announced in September 2021, USB paid $5.5 billion in cash and issued almost 44 million shares of U.S. Bancorp common stock. At closure, MUFG holds a minority stake of roughly 3% in U.S. Bancorp.
The systems integration and account conversion will likely occur in the first half of 2023. Until this happens, MUFG Union Bank customers will continue to be served by their respective branches, website and mobile apps.
Notably, the deal doesn’t include MUFG Union Bank's Global Corporate & Investment Bank, some middle and back-office functions, and other assets.
Andy Cecere, chairman, president and CEO of USB, said, “The acquisition of MUFG Union Bank underscores U.S. Bank’s commitment to creating economic opportunities for our customers and communities across the West Coast.”
Following the completion of the deal, MUFG continues to be one of the largest foreign banks in the United States. Kevin Cronin, MUFG Americas CEO and Regional Executive, noted, “We are very pleased to bring the sale to completion, which enables MUFG to increase our focus and direct our resources on accelerating growth in our Americas wholesale businesses.”
Financial Benefits (At the Time of Deal Announcement)
Assuming a 75% synergy phase-in and 8% accretion to earnings when fully integrated, the transaction is expected to be 6% accretive to 2023 GAAP earnings for U.S. Bancorp. The deal is estimated to be dilutive to 2022 earnings (including PAA and with foregone share repurchases) in the low single-digit percentage, while over the medium term, it is projected to be accretive in the low single-digit percentage.
Additionally, U.S. Bancorp expects to achieve pre-tax cost synergies (40% of estimated non-interest expenses) of nearly $900 million via real estate consolidation, technology and systems conversion, and other back-office adequacies. Of these, 40-50% will be achieved in 2023 and the remaining in 2024. CET1 ratio is estimated to be 8.5% post the deal. Revenue synergies have been identified but not modeled.
Further, the transaction is expected to contribute approximately $310 million to pre-tax pre-provision net revenues in 2022 before considering cost synergies. USB expects $1.2 billion in merger charges, of which $950 million will be incurred in 2022.
Conclusion
U.S. Bancorp has made a number of strategic acquisitions in the past years, which have opened new markets to it and fortified existing markets. These acquisitions, combined with the ongoing investments in innovative product enhancements, services and people, strengthened the company’s balance sheet and fee-based businesses.
Over the past six months, shares of USB have lost 12.7% compared with 1.5% decline recorded by the industry.
Image Source: Zacks Investment Research
Currently, U.S. Bancorp carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Bank Undertaking Similar Steps
Last week, New York Community Bancorp, Inc. (NYCB - Free Report) also completed its acquisition of Flagstar Bancorp, Inc. With this, the combined entity becomes the 24th largest regional bank (based on total assets) in the country. The deal was announced in April 2021.
The combined company will have a robust commercial banking platform, diverse revenue and earnings streams, an expansive retail banking network and preeminent ranking in several national business lines, including multi-family lending, residential mortgage origination and servicing, and warehouse lending.
Per NYCB management, “The merger creates a company with significant scale and capabilities with a more diversified loan portfolio, an improved funding mix, and a much better interest-rate risk profile."