Five key takeaways from the regulatory orders approving the US Bank/Union Bank combination | Manatt, Phelps & Phillips, LLP


On October 14, 2022, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB) both approved the acquisition of MUFG Union Bank, National Association, by US Bancorp and its subsidiary US Bank National Association . The approvals were eagerly awaited not only by the constituent parties of the acquisition, but also by many observers of the banking M&A market who were also curious to know whether President Biden in 2021 Executive Decree (the “Executive Merger Order”) encouraging banking regulators to provide greater scrutiny of mergers would affect this material transaction.

The approval decrees of the CCO and the FRB, respectively, highlight key considerations for bankers and their advisors when considering an acquisition. Here are our top five:

1. Responding to community needs stays front and center

In response to the large number of written comments and oral submissions and testimonies on the transaction and its effects on the resulting bank once the merger is completed (the “resulting bank”), the OCC and the FRB are devoting the majority of their approval orders to how the proposed transaction will affect the convenience and needs of the communities these banks serve. Recognizing the three prongs that financial supervisors apply to assess how well a financial institution is meeting the credit needs of its entire community (the loan test, the service test, and the investment test), the OCC and the FRB provide a detailed assessment of the performance of each institution in several jurisdictions. , which should encourage other potential acquirers to remain vigilant about the performance of their ARC on their platforms.

While both regulators remain focused on the physical presence of the resulting bank’s branches (particularly in low-to-moderate income (LMI) communities), the OCC has taken its hat off in recognition of the hybrid delivery of physical and digital banking and that US Bank’s commitment to investing in digital channels to improve the customer experience is valuable. It should be noted that both US Bank and Union Bank had received “outstanding” ARC ratings in their last ARC reviews, although both reviews lagged significantly behind the filing of the merge requests,1 and US Bank has made significant ongoing commitments (including financial) to maintain a strong physical branch presence, including in LMI areas.

2. Some Types of Regulatory Orders Are Not Automatic Merger Disqualifiers

Union Bank has entered into a 2021 Consent Order with the OCC to address outstanding security and soundness concerns related to its technology and operational risk management and non-compliance with certain interagency guidelines relating to the information security. US Bank entered into a consent order in 2022 with the Consumer Financial Protection Bureau (CFPB) regarding acts or practices that violated federal consumer laws and including practices that the CFPB found led consumers to opening banking products without their consent. The OCC and the FRB acknowledge the existence of the Consent Orders and, based on the wording of the Approval Letters, have consulted with each other and the CFPB regarding these Orders. It should be noted that the OCC’s approval requires US Bank, as the surviving bank, to continue to abide by the terms of the defunct bank’s consent order. While some regulatory orders in areas such as the ARC may be non-starters for strategic combinations, we believe that approval of this transaction demonstrates some regulatory flexibility where parties to a merger have implemented actions demonstrable remedies that address regulatory concerns.

3. Step down the ladder to systemic importance

While the resulting bank of this merger will remain significantly smaller than the four Global Systemically Important Banks (GSIBs) in our financial system, regulators recognize that failure of the resulting bank could result in damage to our financial system. As a result, regulators moved down the ladder of large institutions to impose additional requirements on the resulting bank to “…develop a list of lines of business and/or portfolios that could be sold off quickly in a crisis.” , and…prepare a plan to achieve this separability, including through the creation of a “data room” that includes or could be quickly populated with relevant information for eventual divestment…” Although these financial stability conditions may not arise in future merger transactions involving smaller community or regional banks, we believe that the regulatory imposition of these conditions on the resulting bank could portend similar conditions for other larger transactions.2

4. The views of the CFPB are important

Although the CFPB does not have direct regulatory approval authority over the combination of Union Bank and US Bank, the CFPB played both direct and indirect roles in approving this transaction, whether by his comments on US Bank’s progress on its consent order or information he provided regarding the merger partners’ consumer compliance and fair lending records. We anticipate that the CFPB’s influence over small transactions will continue to grow in the next merger cycle as it has the opportunity to scrutinize more and more financial institutions for compliance with market compliance regulations. consumers.

5. What is the impact of the management merger order following this transaction?

The Merger Executive Order included a recommendation that the Attorney General, in consultation with the heads of the various bank regulators, review current practices and adopt a plan to “revitalize” bank merger oversight to provide a closer examination of mergers.

In his comments accompanying the Executive Merger Order, President Biden noted that the United States has lost, over the past four decades, 70% of the banks that once populated the country and that federal agencies have not formally refused a request for a bank merger for more than 15 years. Additionally, he cited increased consumer costs, credit access restrictions, and harm to low-income communities as direct by-products of bank consolidation.

The impact of the Executive Merger Order on this banking consolidation is unclear. While US Bank has agreed to divest three branches as part of the transaction to another independent institution, regulators appear to be relying on the proven competitive factors they have historically used to assess the advisability of a bank merger. . It remains to be seen when and if the impact of the Executive Merger Order will be felt in future business combinations.

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While the market for bank merger activity has shrunk significantly in 2022 compared to previous years, the approval of the US Bank/Union Bank transaction is a positive sign for future merger transactions large and small. If you have any questions about this newsletter, please do not hesitate to contact Manatt’s Financial Services Group.


1 The last assessment of the ARC performance of US Bank by the OCC was in 2017, and the last assessment of the ARC performance by the OCC of Union Bank was in 2019.

2 Along with this approval of the merger, the FRB and the Federal Deposit Insurance Corporation have requested comments on a Notice of Proposed Rulemaking relating to the new requirements and resources for the orderly resolution of large institutions.

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