MUFG to sell US retail business to US Bancorp in $8bn deal

Mergers & Acquisitions updates

Mitsubishi UFJ Financial Group has agreed to sell its US consumer banking business to US Bancorp for $8bn, a deal that ends its ambition to build a large retail business in America and accelerates the consolidation among the country’s midsized lenders.

The Japanese lender said it would receive $5.5bn in cash and $2.5bn worth of US Bancorp’s shares for the personal banking operations of MUFG Union Bank, a California-based bank it took full ownership of in 2008.

The sale is part of a strategic shift by MUFG to focus its retail business on Japan and Asia, while specialising in corporate transactions in the US and Europe. The deal excludes MUFG Union Bank’s corporate and investment banking operations, as well as its global markets businesses.

MUFG’s acquisition of Union Bank was symbolic of the Japanese banking sector’s global ambitions and attempts to grow beyond the world’s fastest-ageing market.

In the wake of the 2008 global financial crisis, the Japanese group sought to expand its footprint in the US, spending about $3.5bn to buy the remaining 35 per cent in Union Bank of California that it did not already own. Its original investment in the US bank dates back to 1984 when Mitsubishi Bank acquired the Bank of California, which later merged with Union Bank in 1996.

Under the deal announced on Tuesday, the $2.5bn of US Bancorp stock MUFG will receive equates to an almost 3 per cent stake in the US lender. For US Bancorp, the deal creates a group with combined assets of $665bn and gives it access to MUFG Union Bank’s 300 branches in the US. The bank said it expected to achieve about $900m in pre-tax cost synergies.

The transaction is the latest in a series of regional US banking mergers as midsized lenders face pressure to consolidate to compete against the likes of JPMorgan Chase and Bank of America.

MUFG, which owns a 20 per cent stake in Morgan Stanley, said that its assessment of the strategic importance of the US remained “unchanged”. Even after the sale, MUFG said the US would account for more than half of its global business outside Japan.

Hideyasu Ban, a banks analyst at Jefferies, said that MUFG’s move made strategic sense. The continuing alliance with Morgan Stanley, along with the partnership with US Bancorp, should provide it with relatively stable dollar funding even without the retail deposits from Union, he said.

The pressure to consolidate among US regional banks has intensified in the wake of the global pandemic. M&T Bank agreed in February to acquire smaller rival People’s United Financial for $7.6bn. Pittsburgh-based PNC struck a $11.6bn deal last year to buy the US business of Spain’s BBVA. 

Morgan Stanley and Bank of America advised MUFG on the deal, and US Bancorp was advised by Goldman Sachs.

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