MUFG Union Bank, National Association (USB) Earnings Call Transcript & Summary

Welcome to U.S. Bancorp's conference call. Following prepared remarks by Andy Cecere, Chairman, President and Chief Executive Officer; and Terry Dolan, Vice Chair and Chief Financial Officer, there will be a formal question-and-answer session. [Operator Instructions] This call will be recorded and available for replay beginning today at approximately 10:30 a.m. Central Time through Tuesday, September 28, 2021, at 10:59 p.m. Central Time. I would now like to turn the conference over to Jen Thompson, Director of Investor Relations and Economic Analysis for U.S. Bancorp. Please go ahead.

Thank you, Natalia. Good morning, everyone, and welcome to today's conference call. With me are Andy Cecere, our Chairman, President and CEO; and Terry Dolan, our Chief Financial Officer. This morning, Andy and Terry will make prepared remarks regarding today's announcement and reference a slide presentation, which is available on our website at usbank.com. I'd like to remind you that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today's presentation, in our press release and in our Form 10-K and subsequent reports on file with the SEC. I'll now turn the call over to Andy.

Thanks, Jen. Good morning, everyone, and thanks for joining us on short notice. This morning, we announced that we have agreed to acquire Union Bank from Mitsubishi UFJ Financial Group. Terry and I will take a few minutes to discuss the strategic rationale for the deal and highlight the important financial considerations. After that, we'll take any questions you have. I'll begin on Slide 3, which very simply summarizes why we believe this transaction is a compelling use of our excess capital from both a strategic and financial standpoint. The acquisition of Union Bank meaningfully increases our scale at a time when scale is as important as it's ever been for the industry, and it adds market share in demographically attractive California and other West Coast markets. We see significant opportunity, achieve cost synergies and leverage our broad product set and leading digital capabilities across the Union Bank platform to enhance our growth and return potential. Slide 4 provides some important information about Union Bank. The acquisition will add over 1 million loyal consumer customers and over 190,000 business banking customers, which will increase the number of our business banking relationships by about 18%. We will acquire about $58 billion in loans and about $90 billion in high-quality, primarily low-cost deposits. On Slide 5, you'll see the combination will improve our deposit market share in California from #10 to #5 and drive a double-digit increase in loans, assets and deposits. On the left side is our pro forma branch map. I'll note that about 80% of Union Bank branches are within 3 miles of U.S. Bank branch, providing significant opportunity for optimization. The next 2 slides provide a number of statistics that should give you a sense of why we're excited about the potential to deepen our presence and scale in the vibrant and demographically attractive California market, with its growing in affluent consumer population and its extensive small business community. Slide 6 highlights the very attractive demographics of the California market, which compare favorably with the national average. Turning to Slide 7. You will see that California ranks #1 in several important demographic metrics, including having the largest number of small businesses of any state. Connecting our payments, products and services with our banking products and services into a complete payments ecosystem is a key strategic focus for us. And expansion into the California market meaningfully expands our total addressable market for business banking customers. I'll turn to Slide 8. We now have a significant opportunity to leverage our core strengths across the Union Bank franchise to grow accounts and improve our customer experience. We are particularly excited about the potential to grow the number of consumer and small business accounts and to deepen existing relationships by overlaying our digital capabilities and our robust product set, including wealth management, mortgage and payments across a loyal but underpenetrated customer base. I'll now turn the current call to Terry to provide details on the financial considerations of the deal.

Thanks, Andy. Slide 9 provides a few of the key financial metrics associated with this transaction. In summary, we paid an appropriate price in a transaction that we estimate would generate an internal rate of return of about 20%, which is well above our cost of capital. The transaction will be modestly dilutive to tangible book value at close, but we expect the earn back to be less than 1 year on an accretion method basis and about 1.5 years on a crossover method. We expect modest dilution to earnings per share in year 1, but expect the deal to be 6% accretive to earnings per share in year 2 and accretive by 8% in year 3. Slide 10 provides more detail. I'll highlight a few key considerations. The total transaction value is $8.0 billion or the equivalent of 1.3x tangible book value. This is a cash and stock deal where we will be able to deploy a good portion of our excess capital utilizing $5.5 billion of cash and leveraging our highly valued stock to drive an attractive financial outcome. We will issue 44 million shares of common stock, which is fixed based upon USB's 10-day volume weighted average price for the period ending September 20, 2021. We anticipate that the deal will close in the first half of 2022, subject to customary regulatory approvals. We've identified about $900 million in pretax cost synergies, which is equal to about 40% of estimated Union Bank expenses. The majority of these cost saves will come from integrating business operations and technology systems and eliminating back office redundancies. Additionally, we are confident that we will have ample opportunity to optimize the combined company's branch network given the extensive overlap. We plan to approach the process of branch optimization thoughtfully and in a disciplined manner so as to ensure the continuity of banking services to our combined customer base and to ensure that all customers are more holistically and conveniently served with our broader set of products and services through leading digital capabilities and an enhanced distribution platform. We will not be exiting any markets or reducing availability to branches or banking services in any low and moderate income neighborhoods. We expect to achieve 25% of the estimated cost synergies in 2022, 75% in 2023 and full synergies being realized by 2024. We note -- I'll note that we are not assuming any revenue synergies in our calculations. Nonetheless, as mentioned earlier, we believe that there are significant opportunities for revenue synergies as we deliver a broader product offering and leverage our leading digital technology to grow and deepen relationships. Moving to Slide 11. We are confident in our ability to integrate U.S. Bank -- to integrate. U.S. Bank has a long history of executing on acquisitions, both banks and nonbanks, and our model of running our systems on single operating platforms, which we consider a unique advantage, meaningfully reduces the integration risk of every deal we do. Union Bank has a complementary loan portfolio compared with our existing portfolio, and its track record of consistent credit underwriting is highlighted by the metrics included in the bottom right table. U.S. Bank and Union Bank have similar customer-centric approaches to relationship management and focus on diversity, equity and inclusion, further supporting our belief that the 2 cultures are fundamentally aligned in the most critical areas. Additionally, we are well positioned to leverage our risk management expertise and overlay U.S. Bank's robust compliance infrastructure, which we have fortified over the past several years. Slide 12 should give you a sense of the extensive due diligence that we performed during this process. You have likely seen that Union Bank entered into a consent order with the Office of the Comptroller of the Currency yesterday related to weaknesses in its technology and management of operational risk. We were fully aware of the underlying issues, and we incorporated their implications into our due diligence process, our integration planning and into the deal pricing. We want to emphasize that the consent order will not restrict our ability to operate or grow our businesses. And we believe that the concerns raised by the consent order will largely be resolved by conversion onto our advanced technology platform and robust compliance framework. I will turn it back to Andy.

Thanks, Terry. I'm on Slide 13. We take our responsibility of being good stewards of capital very seriously, and we believe this acquisition is an excellent use of some of our excess capital. I'll note that we expect our share repurchase program will be deferred until the second half of 2022. We believe this is an appropriate and reasonable trade-off given the strategic and financial merits of acquiring Union Bank. You can see on the top left chart that this acquisition utilizes a good portion of our excess capital and moves us to the high end of our CET1 ratio range of 8.5% to 9%. Our long-term earnings distribution targets remain unchanged. We continue to target a payout ratio of 65% to 85% broken out between dividend distributions of 35% to 45% and share repurchases of 30% to 40%. I'll end our prepared remarks on Slide 14. Discipline is a hallmark of U.S. Bank, and it informs how we approach both growth opportunities and risk management. I believe that discipline is exemplified by our acquisition track record, both in terms of the deals we've done and those we have not. Union Bank is the right deal at the right time for the right price. It adds scale, provides significant opportunity to optimize the combined distribution network, and it meaningfully increases our market share in demographically attractive markets. It adds an attractive customer and consumer and business banking client base to whom we can offer our leading digital capabilities and our expansive product set in order to enhance customer experience and drive increased loyalty and wallet share. The bottom line for our shareholders is that this deal improves our growth and return potential and positions us well for the future. The appeal of this transaction is that the combination will benefit all of our stakeholders, our shareholders as well as our customers, our communities and our employees. With that, I want to take a moment to welcome the Union Bank employees on this call. And I want to thank all the U.S. Bank employees for all you do. We'll now open the call for Q&A.

[Operator Instructions] Your first question is from the line of Scott Siefers with Piper Sandler.

Congratulations on the deal. I feel like we've all kind of waited for about a decade for it, so it's nice to see you guys pull the trigger. I guess I wanted to ask about the cost savings and the investments. So given the overlap and just how much more efficient USB is than Union Bank, I guess, the 40% cost savings on the surface look very achievable. But with that said, you're keeping all the frontline branch employees. And presumably, there will be costs to remediate the new consent order. So I was just hoping you could walk through in a bit more detail sort of the puts and takes for what gives you confidence in the cost savings? And then are those savings net of any costs that you would expect to incur to remediate that order?

Yes, Scott. So thank you much. This is Terry. So maybe with respect to the last question, certainly, we took the costs associated with any remediation into consideration and it’s part of our modeling process. So it's incorporated into the deal economics. And we would expect to be able to achieve these types of savings even with that. When you think about cost savings overall, I would say that we feel very confident in terms of our ability to be able to achieve the overall savings based upon kind of the timing that we talked about. And I think that there's going to be a lot of different areas for potential opportunity, especially related to the business operations, the systems, the integration of technologies, et cetera. And then there's a lot of opportunity with respect to back office redundancies and support functions. When we think about the branch network, at least, at this particular point in time, we're going to be very thoughtful of it. There is significant overlap. So we know that there is opportunity there. In today's environment, when you think about hiring -- the attrition that exists within a branch network and the need to be able to hire employees, retaining all the front office branch-related customer-facing employees, we think, is the right decision. And obviously, we have taken that into consideration in terms of coming up with our cost savings. But we do believe there is opportunity to be able to optimize given the overlap. A lot of the savings that we've incorporated in here are related to the branch network, are really related to the physical aspects of the branch as much as anything. And then again, just as a reminder, we will not be exiting any markets that are served by either U.S. Bank or Union Bank, and we're going to be retaining those frontline employees. We're also very committed to low and moderate income communities, and we will not be closing branches in those areas. So that's kind of how we're thinking about it as we think about cost savings.

Your next question is from the line of Bill Carcache with Wolfe Research.

There's been a lot of anticipation over the years as was alluded to in the last question about when you guys would do a deal and who you’d target. Can you give a little bit of color on how you came to the conclusion that Union Bank was the right target among all the options at your disposal?

Yes. This is Andy. Bill, so we've talked about the strategic and financial criteria that we think about when we consider a deal. And we obviously said it needs to meet our financial hurdles. It needs to be big enough to matter in terms of either expanding geography or increasing market share in attractive markets, which is exactly what this does. It adds scale, provide significant opportunity to optimize our combined distribution network, as Terry talked about, and I talked about the attractive markets of California and the high growth prospects, both from a consumer as well as business banking standpoint. We've been familiar with MUFG for some time. We operate in some of the same markets on the West Coast, as you know. And we most recently had an interaction with them when we acquired their debt servicing and security custody services from them last year. So when this opportunity became available, we took a deeper look and got to know the company better. And over time, Bill, it became clear this would be a great fit for us for all the reasons I just articulated. And as I mentioned, I think, it's good for the shareholders, but importantly, also for the communities, the customers as well as the employees.

Got it. That's helpful. And I know you didn't contemplate revenue synergies in your estimates. But can you give a little bit more detail on the revenue synergy opportunity where you see the greatest potential?

Yes, Bill, thank you very much. Well, first of all, as Andy said, these are very attractive markets and you end up looking at the -- both the demographics and the growth characteristics. They're high-growth markets relative to the national average and other parts of our footprint. So we do think that there's opportunity to grow. When you think about their composition of fees to overall revenues, I think that there's this opportunity there. And I'd just kind of point out a couple of things, and Andy mentioned this, we're acquiring over 1 million customers. There's 190,000 small business customers. They're big and small business within California. We think there's lots of opportunity. The average deposit size and the affluent of the customer is very nice. And so we think that from a wealth management perspective, there's opportunity. And then in areas like treasury management and bringing real-time payments, our digital capabilities, not only is going to drive customer experience and the ability to retain those customers, but I also think the opportunity to grow. So when we think about whether it's on the consumer side, the mortgage banking side, small business, we just think that there's lots of areas of opportunity for us as we think about the future.

That helps. And lastly, if I could squeeze in one more on the consent order. How long into your due diligence process were you when you first learned about it? And what gives you confidence that it won't be an obstacle to closing?

Yes. As part of our due diligence process, we went through and we were very aware of all the issues that had been identified and part of that is in the early stages through a lot of the self-identification that they did. As the consent order became more apparent, we went back and we made sure that we had covered everything. And as part of that, we realized that we were fully aware of everything. It really is focused on technology and operational compliance and some of the governance associated with that. And we feel very confident for -- that really is going to be something that we're going to be able to remediate and resolve for a variety of reasons. One is we made significant investment in our own risk management programs. This is a situation where we have the opportunity to be able to lift and shift all of their customer activity onto our system, so we're not retaining any of their systems. And then the other thing that I would point out is they have 2 data centers, and we are not retaining those data centers. So once we get through the conversion, we will have brought all of that onto our platform and under our risk management and compliance programs which are very strong. And so we feel very confident about that.

Your next question is from the line of Mike Mayo with Wells Fargo Securities.

So one positive question and one negative question. I guess the positive leads to the negative and that is you're doing a lift and shift transaction. You're using your superior technology. If you could quantify maybe how many systems, how many apps that they have? And if you're keeping any of their technology or if it's all U.S. Bancorp? And that leads to the negative part of it. Even with doing that, how do you know you're going to get this deal approved in a timely fashion? Some deals are approved quickly and some take several years. What gives you -- and it seems like you're doing a lot of the things that would be expected, keeping the frontline employees, not closing branches, low, moderate neighborhoods, things like that. But I'm just concerned that you're going to have these transition teams waiting around, getting ready for the transitions and then the deal is not approved by regulators.

Yes. Mike, let me take the first part of the question, and then I'll have Andy kind of talk about maybe the second part. With respect to -- and as we have gone through the due diligence, one of the things we're very focused on is really the system integration activities. They have probably over 100 different applications and systems that we know will be subject to the integration. And at this particular point in time, we do not anticipate retaining any of those. If you think about the business that they're in, the products that they offer and all those different types of things, they're pretty much very traditional. And when we think about the product offering, the mapping, et cetera, we really believe that all of those -- all those system applications will go away as part of the integration. It will be something that we'll fully explore, but that is our expectation at this particular point in time. So that gives us a lot of confidence, again, that we are going to be able to kind of bring it under our umbrella, our technology framework and system of internal controls and under our risk management and compliance program. So maybe that's the first part of it. And then with respect to the second part, I'll let Andy talk to that.

Yes. Thanks, Mike. Mike, as you know, we have a very good relationship with our regulators and a long track record of doing the right things for customers, employees and communities. And we've been in discussion with the regulators. We believe strongly that our technology capabilities as well as our compliance framework actually helps address the issues that are itemized in the consent order and address them more quickly. So I think this is a positive. And as I talked about, I think this is a deal that benefits all the constituents, not just U.S. Bank shareholders, but the Union Bank customers and the communities they serve. And I think it offers a robust product set and the capabilities that Terry mentioned because of the scale that we already have. So I think we consider all those facts. We're working closely with the regulators on this. And importantly, I think this also creates a pro-competitive environment in California. I think we'll just be better able to serve the customers with the products that we have, combined with the Union Bank customer base. And I think it's a good thing for all the constituents, as I said. So that's our belief, and we're going to work closely with the regulators to make sure this gets done.

And then one follow-up. In terms of customer attrition, are you assuming any? And you're not assuming revenue synergies. And also, the total addressable market for business banking customers, you said would increase. Do you have any numbers around that?

Yes. With respect to attrition, any time you go through an acquisition, you know that you're going to expect to see some level of attrition, and we have incorporated our best estimate with respect to what that will look like. I think there will be a number of things that will help to alleviate that attrition, and we have seen this when we've gone through acquisitions before. Retaining the frontline customers -- or excuse me, employees in the branches and relationship managers is critically important with respect to the transition of those customers and minimization of attrition as you go through it. And then as we think about the branch network, we're not exiting any markets. We're going to make sure that they have access to the branches to the extent that that's the way that they want to serve their customers. So yes, it's incorporated into the deal economics. To some extent, it's kind of based upon our experience in the past and the strategy that we are using regarding frontline customers really, I think, helps to mitigate some of that.

And then, Mike, in terms of the addressable small business market, there's a slide that we talked about the fact that there are about 33 million small businesses across the United States. California has the #1 market share of about 13%. So that would be just over 4 million customers in terms of the total addressable. And as I mentioned in the numbers, they have currently about 190,000 business banking, small business customers, which increases our base just under 20%.

Yes. And one of the things Andy talked about is this -- our whole strategy around payments and the business banking ecosystem, we really think that there's a nice opportunity as we think about expanding and deepening our relationship, not only with our own business banking customers, but with theirs as well. And so we think that that's a great opportunity.

Your next question is from the line of Betsy Graseck with Morgan Stanley.

A couple of questions. First, on the consent order and conversions. The way I read the consent order is there's a lot that MUFG Union Bank has to do in the next 3 months. I would assume they have to continue that process since you won't be closed by that period of time. But then once you do close, you have to continue that consent order requirements until the conversions, at which point you think that you will have satisfied everything in a different way than how they have communicated to the regulators. If they were to be stand-alone, they would do. Is that fair?

Yes, I think that that is fair. I would maybe just tell you that as we have gone through this process, both working with MUFG as well as in conversations with the regulators, we do believe that we will have the opportunity to at least observe and participate and understand the remediation plans that they are putting together. And of course, the OCC will be very actively involved in making sure that that makes sense. And so even over the next 90 days, we'll have visibility into what that remediation plan looks like, especially because of the fact that a fair amount of the remediation -- I mean they will be required to be focused on prior to close. But you're right, we do pick up that responsibility and because of the fact that the integration and systems conversions resolve many of those things that needs to be incorporated or considered into the remediation. So we'll be very actively involved in that even at the early stages. Andy, what would you add?

I think that's right. I think the way you laid it out, Betsy, is correct that there's a set of responsibilities that Union Bank has over the next 90 days. We're going to be closely working with them and monitoring those. And then we take over at close. And as we talked about, we believe majority of the issues will be resolved as part of our conversion process, which again is migrating to our systems and our compliance framework.

In your conversion time frame, could you give us a sense as to -- I know it's early stage and it's subject to even more due diligence as you get closer. But could you give us a sense of the timing?

Yes. Right now, our expectation is that there will be a couple of different phases that will be pretty closely tied together. We tried to do it over long weekends. And so we're thinking that both Labor Day and Columbus Day weekends would be targets for us to complete substantially all of these integrations. And that gives us a little bit of flexibility to be able to also utilize, for example, Veterans Day or into November, if necessary. So late third, early fourth quarter...

Of '22.

Of 2022.

Right. And then on your deck, you highlight 70 -- most of the cost saves associated with that would come in '23 with a 25%, if I can call it, a stub piece thereafter. Can you give us a sense of what that is since the vast majority of the 40% cost save is coming from tech and ops? What is the 25% stub piece related to?

Well, the -- I mean, obviously, the 25% with respect to 2022 is just kind of the timing of the integration. With respect to 2023, in terms of why we're at 75% is because there will be things like retention costs and those sorts of things that will bleed into 2024. But it's not because the integration will be done. It will because of some of those accounting sort of things.

Okay. And then last for me, MUFG Consumer Bank had something called PurePoint digital consumer bank offering. Is that something that would continue? Is that a technology that you would integrate or build on? Or is that something that you would say we don't -- we're going to close that down?

Obviously, we're still in the process of making that decision. But by and large, we think that everything is going to transition to our systems, our platform, our digital capabilities. So at this particular point in time, that's kind of our game plan.

Your next question is from the line of David Long with Raymond James.

Shifting gears away from the consent order and stuff. The bigger picture for you guys, I know you've talked a lot about Charlotte and some other areas in the Southeast region as growth vehicles. Does this feel change your appetite to expand in the Southeast region?

No, I think this offers the opportunities that we talked about, David, in terms of a step function, in terms of scale and acquiring customers in attractive markets. But we're still looking at the other opportunities about expanding our distribution that we've talked about in prior discussions and calls like what we're doing with Charlotte, like our partnership with State Farm. So this is just another mechanism, a little bit faster and bigger, but same concept of distribution and our customer base.

Got it. And then the follow-up question related to the other assets part of the acquisition that are not included. I know there's a Homeowners Association business that I don't think is part of the deal. What else from the regional bank franchise of Union Bank is not part of this transaction?

Yes. There are very, what I would say, marginal small items that were not coming over. They had an emerging technology team, which was 6 to 8 relationship managers and the relationships that are kind of tied to that. It's things like that the other assets is kind of a catch-all to make sure that we cover that. So -- but nothing of significance.

Your next question is from the line of Vivek Juneja with JPMorgan.

Congratulations. I guess Andy, Terry, when you think about the consent order and, say, you talk about conversion plan for late 3Q, early 4Q, are you factoring in the -- what are you factoring in for any potential time -- potential for delay because of the consent order? Do you think there's -- that could get pushed back a little bit? And if so, how much? In terms of time, do you think in a sort of a worst case scenario?

Yes. Vivek, at this particular point in time, based upon what we know in conversations, both with MUFG as well as from a regulatory standpoint, when we go through all of the issues that have been identified and the aspects that are part of the consent order, they, by and large, get resolved by changes in technology and through the conversion process. And so when we look at it, we're going to be very focused on making sure that we do a quality integration and conversion, and we do it at the pace that we've kind of laid out. So really, when we have laid out and mapped out each of these issues and how we believe it ends up getting remediated, they can get remediated through the conversion, and we don't think that they necessarily stop or slow down the conversion process.

I'd add. But I think Terry is spot on. And all I'd add, Vivek, is that in prior consent orders, sometimes the extension or the time frame is a function of us having to build the capability, a platform or technology or a framework. In this case, we have -- that's a strength of ours now. Our technology capabilities and our platform, our compliance framework is a strength. So we're not building it. We're converting from what they have to what we already have, which is in good shape.

That's very helpful. One more, if I may. The year 1 dilution, Terry, that you talked about, is that partly because of -- are you factoring in the CECL day 1 provision into that calculation?

I mean certainly, the day 1 double count, it was certainly a part of the overall modeling and the deal economics, et cetera. So yes.

Your next question is from the line of Ken Usdin with Jefferies.

If I could ask a couple of cleanup questions on the transactions assumption slide on Page 19. The first is, is the suspension of buybacks included in the 6% accretion number?

Yes. I mean certainly, the whole deal economics expects and anticipates that the share buyback is suspended. So absolutely.

Yes. Okay. Thought so. And then that would assume also that the debt issuance and the preferred equity and -- are also in there?

Yes. Everything is included.

Okay. And then secondly, just on the loan mark, can you talk about how does that net in terms of what type of purchase accounting -- net purchase accounting, either accretion or amortization that also will be running through the deal model?

Yes. Great question. So when you end up looking at kind of the -- both of those components, the allowance that will be established kind of net of any of these kind of day 2 charge-offs that related to things that they have previously charged off, the allowance will be about $1.2 billion or about 2.1% of the loans outstanding. And included in that is the non-PCD mark, if you will, and that represents about $920 million or about 75% of the overall component. As you know that that does get accreted into because you have to set that up as an allowance and then there's an accretive aspect to it that does get accreted into income over time. Kind of offsetting that, though, is a little over $500 million worth of fair value mark to markets and obviously, the core deposit intangibles, et cetera. And the aspects of that really helped offset. I mean so when I think about the overall impacts of accretion and dilution, for example, to margin, there is some, but it's not significant.

Right. Okay. And then last one, just when it says that Union Bank management estimates are used for earnings, can you just give us a thought process on what type of growth were they expecting? Does it use a normalized provision? Just wondering on how we think about the trajectory of what was happening on the UB side.

Yes. I mean obviously, when they put in -- they put together their internal estimates. And we took a very hard look at that as part of the due diligence process. We made some adjustments related to assumptions related to things like mortgage banking revenue, what's happening in the market, those sorts of things. We did normalize, for example, provisions to take into consideration what we think is going to be appropriate there as well as things like the tax rate, et cetera. So that is all incorporated into the internal estimates that were used as part of the deal economics.

And Ken, I'd add one more thing just to make sure we get it out there. Terry mentioned, we started having conversations with Union Bank early in the third quarter. And at that time, we were required to halt our buyback activities. I want to make that clear. So for that reason, our third quarter CET1 ratio will be just over -- just a little over 10%, again in anticipation of the deal. So you'll see it migrate up a little bit before it comes down at the close.

Your next question is from the line of Tom Stephens with Evercore ISI.

You have Tom on for John Pancari. Just a quick question. I know you guys said you don't have any interest in getting out of any of the MUFG markets. So I guess kind of additionally, on top of that, just any optimizing the balance sheet stuff you guys want to do? Any loan runoff, deposit rundown that you guys are expecting?

Yes. With respect to what's incorporated in the modeling process, we don't anticipate any major changes to the balance sheet. Certainly, when we went through the credit evaluation analysis, their credit underwriting is very similar to ours. It's strong. Their loan to values are good, conservative. FICO scores are strong. So when we end up looking at the vast majority of the components of the balance sheet, both on the investment portfolio as well as loans, there may be some changes, but it will really be only on the margin. It won't be significant.

Your next question is from the line of Gerard Cassidy with RBC.

Can you guys -- you touched on, Terry, some of the other selected assets that you chose not to bring on board. Was the Global Corporate and Investment Bank available for purchase? Or -- and if it was and did you -- and you guys turned it down, share with us your thinking on why you turned it down if it was available?

Yes. That from the very beginning is something that MUFG wanted to retain. And a big part of it is because if you think about their business, their Japanese customers that do business in the states, et cetera, they really felt that at the high end, they wanted to continue to retain the corporate and investment banking aspect. So that is something that from the very beginning was expected to be carved out.

And in that carve out, does that complicate the breakaway of the rest of the assets? Or do you think that no, you guys will have your arms around that? It shouldn't be too complicated.

Yes. We spent a lot of time in due diligence over the last time frame really to make sure that we had clarity with respect to what that carve-out would look like. The people that were necessary in order to be able to support it, the middle office and back office functions that were necessary in order to be able to support it. And we really took into consideration what that would look like as part of the carve-out. So it's all contemplated as part of the deal.

Okay. Very good. And then a follow-up question. The sale of the consolidation of the industry, as we all know, has been going on for 40 years. And it seems like when the foreigners sell their U.S. subs to American banks whether going back to the Crocker National deal with Wells Fargo and they bought it from Midland Bank back in the '80s, it seems like the buyers get themselves a franchise that needs to kind of be invigorated. And can you share with us your experience in deals that you've done in the past? And how are you going to reinvigorate the Union franchise? And maybe compare to us or talk to us where the biggest opportunities are for you to put the USB brand and imprint on this new acquisition?

Yes, Gerard. So first, I believe the Union Bank deal is a good cultural fit. They were very customer-centric, very relationship management oriented. As Terry talked about, they have a strong credit quality track record, and they have a similar underwriting philosophy to what we have. I think what we have is a more robust product set and more expanded and more digital capability. So our opportunity is to continue to serve the customers well like Union Bank was doing, but also have a broader set of options and capabilities and services that we can offer them given the scale that we've had and the investments we've made. And I think that's part of the thinking that we had. And frankly, I think that's part of the thinking that MUFG had in terms of offering their customers a broader set of products.

We do have a follow-up from the line of Vivek Juneja with JPMorgan.

Just a quick follow-up. What's the CET1 of the bank that you are acquiring, the entity that you're carving out here?

Yes. So the expectation is that they will deliver $6.25 billion of capital, and that will be a CET1 of 10%.

Okay. And are you still, Andy, Terry, thinking that post the close of this deal and once -- before you resume buybacks, you go back to a 9% CET1, 8.5%? What are you -- what's the thinking at this point?

Yes. At this particular point in time, we will be really holding on the buyback until we get to that 9% CET1 ratio at this point.

Okay. Great. And I think you gave us -- in terms of the -- I don't know if you talked about this, but the core deposit intangible mark that you're going to be taking, any -- I don't know if it's already in the slides and I just missed it.

Yes. It is in the -- I believe it's in the slide, but the core deposit intangible is about 0.5% of the nonmaturity deposits. And if you end up looking at deal precedents, that's pretty consistent with what most deals look like.

There are no further questions. Do you have any closing remarks?

Yes. Thanks, everyone, for listening to our call, and please contact the Investor Relations department if you have any follow-up questions.

This concludes today's conference call. Thank you for your participation. You may now disconnect.