Politicians who mistrust Wall Street’s motives warn darkly of the rise of mega-banks. They will no doubt give U.S. Bancorp a hard time for its $8 billion acquisition of MUFG Union Bank, announced on Tuesday. On balance, though, this merger of two lenders is the good kind.
In buying the U.S. lender owned by Japan’s Mitsubishi UFJ Financial, the bank run by Andrew Cecere will go from being California’s sixth largest to its fifth. Cecere’s planned cost savings of $900 million are equivalent to 40% of MUFG Union’s non-interest expenses, higher than the 35% that PNC Financial Services outlined when it bought the castoffs of Spanish lender BBVA last year. U.S. Bancorp is also paying around 1.3 times MUFG Union’s tangible book value, less than the multiple at which its own shares trade. For investors, there’s no reason to be displeased.
Regulators might have other ideas. President Joe Biden has asked them to be tougher on big bank mergers. But most of the markets in which U.S. Bancorp will get bigger, like Los Angeles, are either highly competitive or already in the grip of other, bigger lenders. In the Oxnard-Ventura-Thousand Oaks area, U.S. Bancorp would only have a 7% share of deposits following a deal, according to data from the Federal Deposit Insurance Corporation. Wells Fargo, Bank of America and JPMorgan together have 68%.
That’s why deals like U.S. Bancorp’s ought to be cautiously welcomed. Those three giant lenders have more than one-quarter of the nation’s deposits between them, and networks that span the country. That gives them colossal financial power. JPMorgan spent over $10 billion on technology last year, whereas U.S. Bancorp spent $1.3 billion. Bank of America filed for 403 patents in the first half of 2021 and has a portfolio created by nearly 6,000 inventors. The average regional bank can’t compete.
Harder to persuade are legislators like Congresswoman Maxine Waters. She openly decries the creation of new giant lenders and has hauled many a chief executive in front of her House Financial Services Committee. While Cecere has been saved thus far, a grilling of him could make for good television. And as a representative of Los Angeles, U.S. Bancorp’s deal is right in Waters’ backyard. Questioning the effects of the deal on local communities is fair game. Still, for banks’ customers overall, such deals are better done than not.