US Bancorp sees a great opportunity in California after agreement with Union Bank

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

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

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

US Bank
US Bank says its digital platforms are much more advanced than Union Bank’s. He hopes to be able to leverage the new capabilities into more sales with the recently acquired bank’s customers.

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

The bank with assets of $675 billion expects the transaction increase earnings per share by 8% to 9% in 2023when it expects to realize about 35% of the $900 million in cost savings associated with the deal.

Once all of the spending reductions are achieved, largely by reducing redundant services and infrastructure, US Bancorp said it expects EPS accrual to rise to “low double digits.”

Revenue gains were not included in the projections, but US Bank’s parent company anticipates it will be able to capitalize on its scale to reach new customers in California while deepening account relationships with Union Bank’s customer base.

US Bank’s digital business and consumer platforms are much more advanced than Union Bank’s, Dolan said. He thinks Union Bank customers will be impressed with the new capabilities and accompanying products, paving the way for more sales.

“It’s going to be a little bit of a leap in time for them,” Dolan said.

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

The banks originally hoped to close the combination in mid-2022. But the approval process came at a time when the Biden administration asked regulators to take a closer look in consolidation before approving major bank acquisitions.

The review process caused approval delays across the country over the past 18 months and slowed the overall pace of bank M&A in 2022.

Although the deal closed nearly six months later than initially planned, its completion comes at a good time for US Bancorp, according to Jefferies analyst Ken Usdin, who said it provides “airborne earnings coverage of two years of cost savings and net accrual earnings ahead”. “

US Bancorp said its average fourth-quarter loans grew 18.8% year-over-year and 6.8% on a peg quarterly basis.

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

He pointed to some concern among borrowers related to inflation, high interest rates and forecasts of a recession. US Bank is bracing for a mild recession this year, and its deposit costs are rising.

Still, business customers from California to the Upper Midwest and Southeast continue to plan for long-term investments and continue to seek loans at a steady pace, Dolan said.

“They are cautious but also a little bit optimistic,” Dolan said of business owners. Even with rising borrowing costs, “he realizes they need to finance their operations because their customers continue to create demand.”

US Bancorp posted fourth-quarter net income of $853 million, or 57 cents per share, down from $1.58 billion, or $1.07 per share, a year earlier.

The results included several one-time costs related to the Union Bank acquisition. Stripping out those items, Oppenheimer analyst Chris Kotowski estimated that the bank would have earned $1.26 per share.

Prior to the earnings report, the median estimate of analysts surveyed by FactSet Research Systems was EPS of $1.12.

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