In September of 2021, MUFG sold UnionBank to US Bank for $8 billion in a combination of cash and stock. At face value, the deal may seem like any other acquisition in the news. Looking closer, MUFG’s move to sell off Union Bank reflects a larger trend. Spain’s BBVA gave their services over to PNC Holdings, and HSBC is doing the same with Citizen’s Financial. International banks are leaving behind their American Retail banks and moving on. Why?
Ever since the global financial crisis, regulatory pressure and declining interest rates have reduced margins and forced banks to specialize. Intermediaries are now faced with a choice: cling to their dying retail business or specialize in another field? It is exceedingly difficult to service all customers in all circumstances. HSBC’s CEO Noel Quinn said that HSBC’s recent move reflects an attempt to “stop trying to be everything to everyone.”
Additionally, regulations have put further pressure on banks to increase spending on their compliance divisions; these costs can be especially unattractive to international banks with more profitable operations. At the same time, consumers are moving into digital banking as a result of broad social dynamics and the cultural shift instigated by the COVID-19 pandemic. The largest banks in the United States have the resources and expertise necessary to build those platforms, but smaller regional banks are constrained in their ability to follow suit due to high costs.
MUFG’s deal, specifically, included a consent order regarding Union Bank from the Federal Deposit Insurance Commission (FDIC), Office of the Currency Controller (OCC), and the Federal Reserve. In this case, the consent order represents a settlement agreement between these agencies and the bank, and it highlights issues that must be addressed. One item in the order indicated that Union bank had many apps that were running on outdated operating systems; the FDIC, OCC, and Federal Reserve said that UnionBank had to update the operating system supporting these applications.
US Bank already has similar applications that use better technology. In purchasing Union Bank, US Bank knew that it could easily upgrade UnionBank’s operating systems and satisfy the terms of the consent order. Moreover, US Bank benefits immensely from this deal; it receives an increase in deposits of $90 billion and gains a million customers and 700 corporate clients. US bank also became the fifth-largest bank in California, up from 10th.
US Bank’s acquisition of Union Bank is not the first and will not be the last. As smaller banks struggle to achieve the level of digitalization required in modern-day banking and to keep up with changing regulations, rising regional banks and community banks will likely be forced to merge with larger ones. In the long run, this will limit consumer choices, and the market will become more concentrated.