Piece by piece, U.S. Bancorp is moving into Southern California in an effort to become a major banking force in the state. While it still has a long way to go to seriously challenge California’s two giants, Bank of America and Wells Fargo Bank, the Minneapolis-based bank is definitely gaining ground.
Over the past year, U.S. Bancorp has spent about $1.4 billion to buy three Southern California institutions, and now there are rumblings that it may be considering a bid to take over Union Bank, California’s and OC’s third-largest commercial bank.
Its recently approved acquisition of Newport Beach-based Western Bancorp,parent of Southern California Bank, the fourth-largest commercial bank in OC, with assets of $1.15 billion as of June 30,and its acquisitions of Bank of Commerce and Peninsula Bank, both of San Diego, there will be almost 50 U.S. Bank branches in Southern California by midsummer, bringing its statewide total to more than 130.
That still pales in comparison to the dozens of Bank of America and Wells Fargo branches in OC and hundreds statewide. Having failed in its effort to acquire Wells Fargo last year, U.S. Bancorp has been forced to settle for picking up smaller regional bank networks around the state. But it is slowly, steadily building a critical mass.
“They have made it very clear that California is integral to their growth,” said analyst Nancy Bush of Ryan, Beck & Co. in New Jersey. “What they have bought so far is pretty smart,smaller, incremental properties that will result in a significant presence. It’s sort of a stealth strategy.”
With total assets of $78 billion, the bank ranks far behind Bank of America, with more than $620 billion in assets, and Wells Fargo, with more than $200 billion in assets. So rather than try to compete head-on with the Big Two, U.S. Bancorp is opting to niche-market specific products, at least for now.
“We already do business in Southern California through other channels, like credit cards,” said Kent Stone, senior vice president and regional sales manager for California. “We have a good index money-market fund. We have a robust online site. One way to appeal to people is to use the electronic medium. To go head-to-head against Wells just doesn’t make sense economically. But we’ll have 48 branches in Southern California, where last year there were none.”
Attempting to overtake one of the two California giants is not a feasible strategy for U.S. Bancorp, many analysts say.
“If you’re not first, second or third in the market, it is very difficult to compete in a broad way,” said James Bradshaw, an analyst at Pacific Crest Securities in Portland, Ore. “It’s hard to be first or second, because of how big BofA and Wells are, so they should try for No. 3.”
Indeed, U.S. Bancorp reportedly has been contemplating a run at Union Bank, the primary unit of Unionbancal Corp. That prospect has generated enthusiasm in the market, even as bank officials play down the talk.
Shares of U.S. Bancorp have risen slightly, to around $34 as of late last week, up from around $30 when news reports first surfaced in late September. Unionbancal shares have jumped to around $45 from $36.
“No one is ever disputing that (Union Bank) would be an attractive bank, and we have to find ways to expand,” Stone said. “But the rumors are unfounded.”
Not according to one community banking activist, who said U.S. Bancorp Chairman John Grundhofer told him he had flown to Tokyo to discuss just such a merger with Bank of Tokyo-Mitsubishi, Unionbancal’s majority shareholder, several months ago.
“He said there wasn’t an agreement on price, said Robert Gnaizda, policy director of the Greenlining Institute in San Francisco. When I asked him if there was still interest if the price was right, he wouldn’t answer. I believe the matter is still open to discussion.”
“Under the circumstances, I cannot comment on anything about that subject and that company,” said Union Bank Vice Chairman Richard Hartnack, citing legal counsel.
Several analysts agreed that acquiring Union Bank would be the most logical move for U.S. Bancorp to become a force here.
“I suspect they have tried to acquire Union Bank,” said Bradshaw, who mentions City National Corp. of Beverly Hills and Imperial Bancorp of Inglewood as other banks that would fit U.S. Bancorp’s needs.” n
NEW LINE-UP
10 largest banks in California, by deposits
Branches Deposits (billions)
Bank of America Corp. 1,035 $89.7
Wells Fargo & Co. 753 53.3
Unionbancal Corp. 258 21.0
Imperial Bancorp 15 7.1
First Security Corp. 94 6.3
Sanwa Bank 108 5.8
U.S. Bancorp 133 5.5
Bancwest Corp. 122 5.4
Citigroup Inc. 77 5.3
City National Corp. 50 4.8
All figures as of August 1999. Data reflects pending and completed acquisitions.
Source: SNL Securities
Brinsley is a staff reporter at the Los Angeles Business Journal.
