August 12, 2008 / 6:24 AM / 10 years ago

MUFG seeks rest of UnionBanCal for $3 billion

TOKYO (Reuters) - Mitsubishi UFJ Financial Group (8306.T), Japan’s largest bank, said it would bid $3 billion to buy the remaining 35 percent of California’s UnionBanCal Corp UB.N, as it looks for growth beyond its softening home market.

The purchase represents a significant bet by Mitsubishi UFJ, which is looking to increase its presence in the United States even as the world’s largest economy continues to stumble through the subprime mortgage crisis.

Saddled with slow economic growth and a declining population at home, Japanese financials, which have avoided much of the subprime meltdown, are increasingly aiming to boost their small market shares in the West.

“In the long-run, the move is not a mistake,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co Ltd.

“Others will likely follow suit as now is a good chance to expand their global operations by buying U.S., European or Asian banks. They just have to be careful to buy good banks cheaply.”

Buying San Francisco-based UnionBanCal will give Mitsubishi UFJ full control of one of the 25 largest banks in the United States in terms of assets. The lender has more than 300 branches across California, the most populous state in the United States.

“Even as the U.S. economy softens, UnionBanCal has been able to deliver very strong performance,” a spokesman for Mitsubishi UFJ said at a briefing for reporters.

“This will allow us to further boost our presence in the United States and expand our business base.”

The spokesman said having full control of the U.S. bank would make it easier to implement group strategy, but declined to give specifics.


One fund manager questioned whether the U.S. market was the best place to go shopping now.

“With the U.S. economy possibly worsening, is it really a good idea to use that much money to make it a full subsidiary?,” said Hiroaki Osakabe, fund manager at Chibagin Asset Management.

UnionBanCal, which has a market value of nearly $8 billion, last month reported a nearly 15 percent slide in net income on higher provisions for bad loans.

However, the bank has largely avoided the subprime mortgage meltdown that crippled other U.S. regional lenders.

Shares of the bank have risen 19 percent so far this year, outperforming a 20 percent drop in the KBW Bank Index .BKX, which tracks the stock performance of large U.S. banks.

    Mitsubishi UFJ said it would offer $63 a share, an 8.3 percent premium to Monday’s closing share price, for the 35 percent of the Californian bank it does not already own.

    Mitsubishi UFJ, which has a market capitalization of almost $90 billion, becomes the latest big Japanese financial firm to boost its overseas presence through a large acquisition.

    Last month Tokio Marine Holdings Inc (8766.T) said it would buy property and casualty insurer Philadelphia Consolidated Holding Corp PHLY.O for about $4.7 billion, marking the largest acquisition by a Japanese financial firm in the United States.

    Mitsubishi UFJ rival Sumitomo Mitsui Financial Group (8316.T) earlier this year invested 500 million pounds ($954 million) to take a 2 percent stake in Britain’s Barclays Plc (BARC.L).

    Through its brokerage arm, Mitsubishi UFJ has also taken almost 15 percent stake in Singapore securities house Kim Eng Holdings KEHS.SI.

    The Japanese bank has been struggling to boost profitability at home. Mitsubishi UFJ reported a 66 percent slide in first-quarter net profit earlier this month and forecast virtually no growth for the year ahead.

    Core operating profit fell by a quarter from the previous year, as the sputtering economy curbed lending.

    Shares in MUFG, Japan's second-most valuable company behind Toyota Motor Corp (7203.T), closed up 0.2 percent at 878 yen, outperforming the Nikkei average .N225, which fell 1 percent.

    ($1=110.12 Yen, .52 Pound)

    Additional reporting by Taiga Uranaka, Yumiko Nishitani, Elaine Lies, Kiyoshi Takenaka; Editing by Rodney Joyce

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