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.
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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”.
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.
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By GlobalDataThe 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
The 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.
