TOKYO - Mitsubishi UFJ Financial Group (MUFG) is pulling back from U.S. retail banking with the $8 billion sale of MUFG Union Bank (MUB) to U.S. Bancorp as digital technology and industry consolidation squeeze out smaller lenders.
The deal includes $5.5 billion in cash and $2.5 billion worth of shares that will give Japan's biggest lender a 2.9% stake in Minneapolis-based Bancorp, which will become the fifth largest bank in the United States, the banks said on Tuesday.
Following the deal, which it expects to close by the end of June next year, MUFG will focus on corporate and investment banking in the United States through other units and through its partnership with Morgan Stanley, which is a fifth owned by the Japanese bank.
"We can't succeed without a certain scale of business," Morito Emi, a managing director for corporate planning at the Japanese bank, said at a press briefing. "There's a lot of mergers and acquisitions going on there," he added.
In order to compete, MUB, which has around 300 branches mostly on the West Coast of the United States, would have had to invest heavily in new digital technology to keep pace with bigger rivals offering new online banking services, Emi said.
U.S. banking industry consolidation gathered pace under President Donald Trump, with deals reaching $55 billion in value last year, the highest in more than a decade.
The number of commercial banks in the United States has fallen by about 10,000, or 70%, over the past 20 years, with President Joe Biden's administration looking to deter M&A deals it sees as harmful to competition.
MUFG's push into U.S. banking has been part of a strategy to expand business overseas to boost profits because ultra-low interest rates and a shrinking population in Japan have made it difficult to earn at home.
The deal with Bancorp comes as MUFG shifts its focus more to other parts of Asia.
Mitsubishi UFJ in 2008 paid around $3.5 billion for the third of Mitsubishi Union Bank it did not already control. With assets of $132 billion, it provides corporate, commercial and retail banking as well as wealth management.
In addition to the $8 billion of cash and stocks from Bancorp, the Japanese parent will also get around $9.6 billion from dividends or share repurchases at MUB, bringing the total value of the transaction to $17.6 billion.
Part of MUB's administrative functions and its corporate and investment banking departments will be transferred to other parts of MUFG's U.S. operations.
($1 = 109.5700 yen)
(Reporting by Tim Kelly, Chang-Ran Kim, Ritsuko Ando and Elaine Lies in Tokyo Editing by Pravin Char and Mark Potter) ((firstname.lastname@example.org;))