U.S. Bank gives mixed update on impact of Union Bank addition

After closing last week on its acquisition of MUFG Union Bank, U.S. Bancorp offered mixed updates Wednesday about the deal’s projected impact on its business outlook.

U.S. Bank’s parent company now expects the $8 billion transaction to provide a larger bump in earnings per share accretion next year than it was previously anticipating, according to company executives who spoke at an industry conference.

But the Minneapolis bank also raised its estimate for merger-related expenses by $200 million from when the deal was announced, citing rising retention and employee-related costs as a result of a delay in receiving regulatory approval.

In remarks at the conference, Chief Financial Officer Terry Dolan touted the Union Bank deal as a way to super-charge the Minneapolis company’s share of deposits in California.

“One thing that’s very important is that … we’ll go from about 10th in the market to about fifth in the market. And that really provides an opportunity,” Dolan said.

For U.S. Bancorp, the transaction adds about $85 billion in deposits, the majority of which are held in consumer accounts. Dolan described “high-quality” consumer deposits on Wednesday as the “golden goose” in a higher interest-rate environment.

The $601 billion-asset bank also anticipates that the acquisition will add around 1 million consumer customers, primarily in California, plus 190,000 small-business clients and around 700 larger corporate customers.

In September 2021, when U.S. Bancorp first announced the deal, it estimated that the acquisition would yield total earnings per share accretion of 8% after fully realizing cost savings. It pegged first-year accretion at 6%, based on an assumption that 75% of the cost-savings measures would be realized that year.

On Wednesday, U.S. Bancorp projected EPS accretion next year of between 8% and 9% as a result of the acquisition, even though it only estimated that 35% of the cost-savings measures will be realized.

Total earnings per share accretion will settle in the “low double digits” when the cost-savings measures are fully realized, the company said.

Two-thirds of the higher EPS accretion forecast is driven by the benefit that rising interest rates have provided to the bank’s balance sheet, Dolan said. He noted that the remaining one-third is related to mark-to-market effects.

Additionally, U.S. Bancorp increased its original estimate for merger-related expenses by $200 million to $1.4 billion.

Regulators approved the Union Bank acquisition in October, and U.S. Bancorp announced on Dec. 1 that it had completed the transaction.

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