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U.S. Bancorp Joins Finance Merger Wave With $8 Billion Deal

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(Bloomberg) -- U.S. Bancorp ended years of speculation with its $8 billion acquisition of MUFG Union Bank NA, joining the wave of consolidation sweeping U.S. regional banks.

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“We’ve all kind of waited a decade for it,” R. Scott Siefers, an analyst at Piper Sandler, said on a conference call with company executives after the deal was announced Tuesday.

The takeover leaves Fifth Third Bancorp as the last of the five largest regional banks by assets yet to land a significant acquisition in the past two years.

Lenders including U.S. Bancorp and PNC Financial Services Group Inc. are bulking up through mergers and by purchasing foreign firms’ U.S. units, an attempt to compete with the retail-banking businesses of Wall Street giants. JPMorgan Chase & Co. and Bank of America Corp. have been moving into new states and are spending billions annually on digital offerings. PNC completed its $11.6 billion takeover of Banco Bilbao Vizcaya Argentaria SA’s U.S. business in June.

The flurry of acquisitions probably means major deals will be on hold for now, according to Herman Chan, Bloomberg Intelligence’s senior regional banks analyst.

“As banks start to digest these deals, there will be a bit of a pause,” Chan said in an interview.

The takeover will make Minneapolis-based U.S. Bancorp California’s fifth-largest bank by deposits, a jump from No. 10 currently, according to a statement. It adds more than 1 million customers and about 190,000 small-business clients.

“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,” Andy Cecere, U.S. Bancorp’s chief executive officer, said in the statement.

Cecere also left the door open for acquisitions further down the road.

“We’re still looking at the other opportunities about expanding our distribution that we’ve talked about in prior discussions and calls,” he said when asked on the conference call if his bank would still be looking for opportunities to expand in the U.S. Southeast. “This is just another mechanism, a little bit faster and bigger.”

The price includes $5.5 billion in cash and about 44 million shares of U.S. Bancorp common stock, according to the statement. The acquisition excludes MUFG Union Bank’s global corporate and investment bank and some of the company’s middle- and back-office functions.

MUFG, which acquired Union Bank in 2008 for about $3.5 billion, had been weighing a sale, Bloomberg News reported last week. MUFG will hold a minority stake of approximately 2.9% in the U.S bank when the deal is completed. MUFG said in a presentation that the total transaction is worth about $17.6 billion, including $9.6 billion from dividends or share buybacks ahead of the sale.

Shares of U.S. Bancorp, which have climbed almost 22% this year, rose 2% to $56.80 at 11:54 a.m. in New York.

300 Branches

MUFG Union Bank has about 300 branches and more than $16 billion in equity capital, or book value, according to data from the Federal Deposit Insurance Corp. The sale is estimated at about 1.3 times MUFG Union’s tangible book value, according to the statement. U.S. banks have sold at a median 1.4 times book value this year, data compiled by Bloomberg show.

Some U.S. bank mergers face headwinds in Washington, where the Biden administration has a new appetite for stepped-up antitrust enforcement. The Federal Trade Commission’s new chair, Lina Khan, has signaled the agency is going to take a tougher stance on approving mergers and scrutinizing deals that are coming up for review.

The Japanese bank’s U.S. unit on Monday received a cease and desist order from the Office of the Comptroller of the Currency, which cited the bank’s “unsafe or unsound practices” regarding technology and operational risk management, as well as noncompliance with security standards.

U.S. Bancorp “evaluated and incorporated these regulatory concerns into all aspects of the deal process,” it said in the statement. “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.”

The deal is expected to be completed in the first half of 2022, according to the statement. Goldman Sachs Group Inc. advised U.S. Bancorp while Mitsubishi UFJ was advised by Morgan Stanley and Bank of America Corp.

(Updates with details on potential for further deals, advisers starting in ninth paragraph.)

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