U.S. Bancorp sheds consent order inherited from Union Bank

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Fifteen months after completing its acquisition of MUFG Union Bank, U.S. Bancorp has been freed from a regulatory action that it inherited as part of the deal.

The consent order, which addressed problems with the Japanese-owned bank's information security and operational risk controls, was terminated earlier this week by the Office of the Comptroller of the Currency.

Analysts at Piper Sandler described the OCC's decision as a positive development for U.S. Bancorp, though they also said in a note to clients that the enforcement action has not been a factor for the Minneapolis-based company's recent stock price.

Shares in the $663 billion-asset banking company are down 1.4% this year. The KBW Nasdaq Bank Index, which tracks the performance of large and regional banks, is up 2.2% since Jan. 1.

The OCC enacted the consent order on Sept. 20, 2021 — one day before U.S. Bank's parent company announced an $8 billion deal to acquire Union Bank from Mitsubishi UFJ Financial Group.

When the OCC later gave its conditional approval for the merger, it stated that "U.S. Bank's stronger technology systems … should correct many of the underlying concerns" that led to the 2021 consent order.

The bank's sale eventually closed in December 2022, or about six months after executives initially projected. The Union Bank conversion was completed last summer, U.S. Bancorp officials have said.

The termination of the September 2021 consent order comes nine months after U.S. Bancorp agreed to settle separate allegations by the OCC that Union deceived customers about three different kinds of fees.

The alleged misconduct involved fees to certain customers who rented safe deposit boxes, charges assessed to some customers in Union's private bank program and the bank's failure to waive monthly service charges in certain situations.

The June 2023 settlement with the OCC came with a $15 million fine, but a U.S. Bank spokesperson said at the time that the company was indemnified by the Japanese banking giant that previously owned Union Bank.

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When the merger was announced in 2021, U.S. Bancorp said that it expected to reduce the combined company's annual expenses by about $900 million, and that it planned to reach that target through a combination of branch and real estate consolidation, technology and systems conversion and other back-office efficiencies.

The company now says that it has achieved its $900 million target for cost savings. Those savings will help U.S. Bancorp to keep its expenses flat in 2024, and to fund investments in areas such as payments and its branch network, Chief Financial Officer John Stern said Wednesday at an investor conference.

Following a recent meeting with Stern, Jefferies analysts wrote in a note this week that the bank has an opportunity to invest in payments products and capabilities within the Union Bank footprint.

Union Bank had substantial West Coast operations, including 280 branches in California at the time the deal was announced.

"Investments will be more geared toward offense than defense moving forward," the Jefferies analysts wrote.

At an industry conference last month, U.S. Bancorp's vice chairman of consumer and business banking, Timothy Welsh, said that the penetration of payments into Union Bank's checking account base was about half of what it is at U.S. Bank.

"And so there's a tremendous upside for credit card," he said.