U.S. Bank National Association, the lead bank of U.S. Bancorp (USB), is set to double its deposit market share in Chicago to $11.3 billion by acquiring the Chicago branch network of Charter One Bank franchise owned by RBS Citizens Financial Group, a subsidiary of The Royal Bank of Scotland Group plc (RBS), for a 6% deposit premium that amounts to around $315 million. The deal is expected to close by mid-2014, subject to regulatory approvals.
According to the terms of the deal, U.S. Bancorp will acquire deposits of around $5.3 billion and loans worth $1.1 billion. Further, the company will assume Charter One Bank’s 94 branches in Chicago, small business operations and 800 employees.
While the transition is underway, RBS Citizens’ Chicago branches will operate under their existing name – Charter One, and following closure of the deal the branches will be referred as U.S. Bank branches.
The deal is expected to aid U.S. Bancorp to overcome the financial complexities in its internal rate of return and enhance earnings per share. Though the company has exposure in Chicago, the deal will pave way for a stronger footprint there.
The move came when in Nov 2013 RBS started seeking buyers to vend its structured retail investor products and equity derivatives business portfolio. This is part of its internal restructuring activities to enhance capital levels and focus more on markets where it has a strong presence and long-term growth prospects. Notably, the British government has 81% stake in the company after it was bailed out with billions of dollars during the financial crisis.
For U.S. Bancorp, the deal is an effort to increase its exposure in the Chicago metro area and an alternative for deploying its excess capital. Notably, shares of the company rallied nearly 1% in NYSE on Tuesday.
The Toronto-Dominion Bank (TD), one of the major banks in Canada, was among other prospective buyers for the transaction.
U.S. Bancorp currently carries a Zacks Rank #3 (Hold). Among the major regional banks, Bank of America Corp. (BAC) with a Zacks Rank #2 (Buy) is worth considering.
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