US Bancorp sees big opportunities in California after deal with Union Bank

Following the acquisition of MUFG Union Bank, US Bancorp expects profit gains from the transaction and the company’s significant new scale in California to offset industry headwinds in 2023.

Chief Financial Officer Terry Dolan said Wednesday the acquisition gives US Bancorp the breadth it needs to better compete in key California markets, including Los Angeles, San Diego and San Francisco, where Union Bank had significant bases.

“It creates a lot of opportunities,” Dolan said in an interview after the Minneapolis-based company released its fourth-quarter earnings.

U.S. Bancorp
US Bank says its digital platforms are far more advanced than Union Bank’s. It expects to use the new capabilities to increase sales to customers of the recently acquired bank.

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The acquisition adds approximately 1 million new consumer customers, 700 corporate customers and 190,000 commercial banking customers to US Bancorp.

The $675 billion wealth bank awaits the transaction Contribute 8% to 9% to earnings per share in 2023when expected to realize approximately 35% of the $900 million in cost savings associated with the transaction.

Once all of the cost reductions are achieved, primarily through the reduction of redundant services and infrastructure, US Bancorp expects EPS growth to ramp up to “low double digits.”

Earnings gains weren’t included in the projections, but US Bank’s parent company believes it will be able to capitalize on its size to reach new customers in California while maintaining account relationships with Union Bank’s customer base deepen.

US Bank’s digital consumer and commercial platforms are far more advanced than Union Bank’s, Dolan said. He believes Union Bank’s customers will be impressed with the new opportunities and the products that accompany them, paving the way for more revenue.

“It’s going to be a little time warp for them,” Dolan said.

regulators authorized the acquisition of Union Bank in October and US Bancorp closed the deal on December 1st.

The banks had originally hoped to wrap up the merger by mid-2022. But the approval process came at a time when the Biden administration was calling on regulators to do so take a closer look in consolidating before approving large bank acquisitions.

The review process has caused approval delays across the country for the past 18 months, slowing the overall pace of bank mergers and acquisitions in 2022.

Although the transaction closed almost six months later than originally planned, its culmination comes at a good time for US Bancorp, according to Jefferies analyst Ken Usdin, who said it “offers two years of profit protection from cost savings and net growth benefits.” “

US Bancorp said its average loans rose 18.8% year over year in the fourth quarter and 6.8% on a combined quarter basis.

Credit growth will continue, but slow through 2023 from the pace of nearly 7% seen last quarter, Dolan said.

He pointed to some concerns among borrowers related to inflation, high interest rates and prospects for a recession. The US bank is bracing for a mild recession this year and its deposit costs are rising.

Still, commercial customers from California to the upper Midwest to the Southeast continue to plan long-term investments and continue to regularly seek credit, Dolan said.

“They’re cautious but also a little bit optimistic,” Dolan said of business owners. Even as the cost of borrowing increases, “there is a realization that they need to fund their operations because their customers continue to create demand.”

US Bancorp reported net income of $853 million, or 57 cents a share, in the fourth quarter, compared to $1.58 billion, or $1.07 a share, a year earlier.

The results include several one-time charges related to the Union Bank acquisition. Excluding those items, Oppenheimer analyst Chris Kotowski estimated the bank would have made $1.26 per share.

Prior to the earnings report, the median estimate of analysts polled by FactSet Research Systems was earnings per share of $1.12.


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