Coming off its acquisition of MUFG Union Bank, U.S. Bancorp expects that earnings gains from the deal and the company's substantial new scale in California will offset industry headwinds in 2023.
Chief Financial Officer Terry Dolan said Wednesday that the acquisition gives U.S. Bancorp the breadth to better compete across key California markets, including Los Angeles, San Diego and San Francisco, where Union Bank had meaningful toeholds.
"It creates lots of opportunities," Dolan said in an interview after the Minneapolis company reported its fourth-quarter earnings.
The acquisition gives U.S. Bancorp about 1 million new consumer customers, 700 corporate customers and 190,000 business banking clients.
The $675 billion-asset bank expects the transaction to
Once all expense reductions are achieved, largely by reducing redundant services and infrastructure, U.S. Bancorp said it expects EPS accretion to rise to the "low double digits."
Revenue gains were not included in the projections, but U.S. Bank's parent company anticipates it will be able to capitalize on its scale to reach new clients in California, while also deepening account relationships with the Union Bank client base.
U.S. Bank's consumer and commercial digital platforms are far more advanced than Union Bank's, Dolan said. He thinks Union Bank customers will be impressed with the new capabilities and the products that accompany them, opening a path for more sales.
"It's going to be a little bit of a time warp for them," Dolan said.
Regulators
The banks had originally hoped to wrap the combination by mid-2022. But the approval process came at a time when the Biden administration called on regulators to
The review process caused approval delays across the country over the past 18 months and slowed the overall pace of bank M&A in 2022.
Though the deal closed nearly six months later than first planned, its culmination comes at a good time for U.S. Bancorp, according to Jefferies analyst Ken Usdin, who said it provides "earnings air cover from two years of cost savings and net accretion benefits ahead."
U.S. Bancorp said that its fourth-quarter average loans grew 18.8% year over year and 6.8% on a linked-quarter basis.
Loan growth will continue, but will ease throughout 2023 from the nearly 7% pace in the latest quarter, Dolan said.
He pointed to some borrower trepidation tied to inflation, high interest rates and forecasts for a recession. U.S. Bank is bracing for a mild recession this year, and its deposit costs are rising.
Still, commercial clients from California to the Upper Midwest to the Southeast continue to make plans for long-term investments, and they continue to seek loans at a steady clip, Dolan said.
"They are cautious but also a bit optimistic," Dolan said of business owners. Even with borrowing costs rising, "there is a realization that they need to finance their operations because their customers continue to create demand."
U.S. Bancorp posted fourth-quarter net income of $853 million, or 57 cents per share, down from $1.58 billion, or $1.07 a share, a year earlier.
The results included several one-time costs related to the Union Bank acquisition. Stripping those items out, Oppenheimer analyst Chris Kotowski estimated the bank would have earned $1.26 per share.
Ahead of the earnings report, the average estimate of analysts surveyed by FactSet Research Systems was EPS of $1.12.
