U.S. Bancorp sails haplessly into political storm

A street sign for Wall Street is seen in the financial district in New York, U.S., November 8, 2021. REUTERS/Brendan McDermid

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WASHINGTON, Jan 3 (Reuters Breakingviews) – A low-key U.S. bank has found itself at the center of a political storm. U.S. Bancorp’s $8 billion purchase of MUFG Union Bank is hanging in the balance as Democratic watchdogs talk tough on deals. The Republican-appointed chair of the Federal Deposit Insurance Corp has even quit in protest over her colleagues’ regulatory maneuvers. The politicization of Wall Street cops may slow deals like U.S Bancorp’s, while not helping consumers much.

There wouldn’t have been an obvious reason to block the purchase of Union Bank a year ago. The combination would create a sizable bank with about $690 billion in assets, according to data from the Federal Reserve. That still pales in comparison to JPMorgan’s (JPM.N) $3.3 trillion or $1.8 trillion at Wells Fargo . U.S. Bancorp also said in September that it would retain all front-line employees. Most of the Californian markets where it will gain scale are already highly competitive or ruled by bigger rivals.

But Democratic watchdogs are taking a darker view of consolidation in general . In December, three members of the FDIC board backed a request for public comment on deals, raising the question of whether any merger that results in a financial institution over a certain asset threshold, say $100 billion, poses a systemic risk. Chair Jelena McWilliams, named in 2018 by former President Donald Trump to a five-year term, said last week that she will step down in February in response to what she has called a “hostile takeover” of the agency.

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Among the other regulators who oversee banks, the Fed has so far been a steady hand, continuing to sign off on deals like PNC Financial Services’ $11.6 billion purchase of Spanish lender BBVA’s (BBVA.MC) U.S. unit . But at the Justice Department, new antitrust chief Jonathan Kanter says he supports the FDIC directors McWilliams opposed. One of those directors is the acting head of the Office of the Comptroller of the Currency, Michael Hsu.

That puts U.S. Bancorp, which needs approval from the DOJ, the Fed and the OCC, in regulatory crosshairs. It could offer generous pledges to protect consumers and invest in communities, as PNC did. Chief Executive Andrew Cecere can submit to public hearings in Washington, as now looks inevitable. Regardless of the merits of its deal, the Minnesota-based lender will end up going wherever the political winds blow.

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CONTEXT NEWS

– Jelena McWilliams, chair of the Federal Deposit Insurance Corp, notified President Joe Biden on Dec. 31 of her intention to resign on Feb. 4. She opposes a proposal supported by three other FDIC directors, who were appointed by Democrats, to request public comment on bank mergers. The issues include whether the agency should presume any merger that results in a financial institution that exceeds a certain asset threshold, for example $100 billion, poses a systemic risk.

– Williams was named in 2018 by former President Donald Trump for a five-year term as chair of the FDIC.

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Editing by John Foley and Amanda Gomez

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