View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. News
August 22, 2008updated 04 Apr 2017 1:14pm

MUFG bets on US upswing

Mitsubishi UFJ Financial, Japans largest banking group, has taken full control of its US subsidiary, signing a deal to buy the 34.6 percent of UnionBanCal that it did not already own Other Japanese banks, namely Sumitomo Mitsui and Mizuho Financial, have also signed deals with Western peers William Cain reports.Mitsubishi UFJ Financial Group (MUFG) has signed a deal with Californias UnionBanCal to take full control of the bank after improving its initial, rejected offer by 17 percent

By William Cain

Mitsubishi UFJ Financial, Japan’s largest banking group, has taken full control of its US subsidiary, signing a deal to buy the 34.6 percent of UnionBanCal that it did not already own. Other Japanese banks, namely Sumitomo Mitsui and Mizuho Financial, have also signed deals with Western peers. William Cain reports.

Mitsubishi UFJ Financial Group (MUFG) has signed a deal with California’s UnionBanCal to take full control of the bank after improving its initial, rejected offer by 17 percent.

The offer to shareholders, approved by the boards of both banks, values UnionBanCal’s (UNBC) remaining shares at $3.5 billion, or $73.50 per share. It came after an initial offer of $3 billion, or $63 per share, was rejected by the UNBC board as “not in the interests of minority shareholders”.overseas focus

MUFG, which already owns 65.4 percent of the US bank, was forced to increase its offer in part because of the emphasis it has placed on expanding its franchise in the US. Some analysts claim it will be used as a platform for further mergers and acquisitions in the country. The businesses already combine MUFG’s securitisation and lending expertise with UNBC’s deposits and settlements infrastructure. UNBC also offers US dollar non-resident accounts for MUFG customers.

The deal, which values 339-branch UnionBanCal at around $10.1 billion, marks another big step overseas for Japanese banks into Western markets and is, significantly, the most retail banking-focused of the recent outbound Japanese M&A deals. Sumitomo Mitsui bought about 2 percent of UK bank Barclays in July, believed to be worth around $900 million, and Mizuho Financial paid $1.2 billion for a stake in Merrill Lynch in January.

Japanese banks have not been hit as badly as their Western peers by write-downs on investments related to US subprime mortgages, or by the steady uptick in defaults on loans in consumer banking. But conditions in their home market remains sluggish.

The Japanese domestic retail banking market has been constrained by an ageing population, strict regulation – notably on credit card interest rates – increased competition from foreign banks and the ongoing privatisation of the country’s post office franchise, Japan Post Bank. It has meant the country’s largest banks are increasingly looking abroad for growth. According to a report by ratings agency Standard & Poor’s, the combined overseas lending of MUFG, Sumitomo Mitsui, Sumitomo Trust and Mizuho Financial increased 2.4 times between fiscal 2004 and 2007.

First significant cross-border M&A

subprimeThe moves by MUFG, Sumitomo Mitsui and Mizuho are the first significant steps the banks have made outside the Asia-Pacific region since the Asian financial crisis of the 1990s – although most of their business is likely to remain in commercial and investment banking.

MUFG’s main overseas business, for instance, comes from supporting Japanese businesses that operate abroad: according to its own figures, it has around 80 percent of all Japanese business operating overseas. But now, with its acquisition of UNBC, the bank has full control of a business with around 1.4 million retail customers. MUFG has owned a majority stake in UNBC since 1996.

In its fiscal 2008 first quarter results, the bank posted consolidated ordinary profits of ¥96.8 billion ($880.3 million), a fall of some ¥196.1 billion. Consolidated net income for the first quarter of fiscal 2008 decreased by ¥100.0 billion from the first quarter of 2007 to ¥51.1 billion.

Katsunori Nagayasu, president of the Bank of Tokyo Mitsubishi, the wholly-owned MUFG subsidiary conducting the deal, said: “The agreement will provide us with a wide range of opportunities to expand our presence in the US through our relationship with UNBC.

“The continuing success of UNBC, particularly in the challenging economic environment in the US, is a testament to the quality of management and the strong relationship we have built over the years.”

UnionBanCal is one of the top 25 banks in the US, operating mainly in California, the country’s most populous state. It ranks as the sixth-largest bank by deposits in the state and has branches in California, Oregon and Washington.

The bank, which has $60.59 billion in assets, posted resilient first-half results in July as its capital base and funding capacity allowed it to continue recording loan growth across its commercial, residential and consumer portfolios. Pre-tax profit was $381.5 million, down 18.71 percent from the first half of 2007. RBI Dealwatch RBI Dealwatch

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Wednesday. The industry's most comprehensive news and information delivered every month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Retail Banker International