Japan's Sumitomo Bank Ltd. on Wednesday became one of the first Asian banks to shed a major U.S. subsidiary, announcing a deal to sell its California operations to Salt Lake City-based Zions Bancorporation for $546 million in cash.
Analysts expect more such sales as Japanese and other Asian banks, burdened by hundreds of billions of dollars in soured loans and the effects of the region's ongoing economic crisis, seek ways to return to financial health.
Sumitomo had said in December that it planned to sell San Francisco-based Sumitomo Bank of California, with $5.1 billion in assets, 47 branches and 15,000 employees. It's the sixth-largest bank in the state, ranked by asset size, but is tiny compared with giants such as BankAmerica Corp.
It is not known if any layoffs would occur, what the name of the new bank would be or whether its headquarters would remain in San Francisco, said Kyle Katatsumoto, spokesman for Sumitomo.
Zions, with about $9 billion in assets, has about 184 branches and operates mostly in Utah, Nevada, Colorado and California.
"This is a very significant opportunity for us to establish a strong presence in the largest markets in the United States," said Harris Simmons, president and chief executive of Zions.
Although Sumitomo owns about 85% of its California unit, the remaining minority stake is publicly traded. The Japanese parent company will get $32.36 for each share it owns, and public shareholders will receive $38.25 per share, far below the $50.50 per-share price the stock closed at before Wednesday's announcement.
The stock price rose sharply after Sumitomo announced plans to sell, and the steep discount from the current price indicates that some investors seriously overestimated the potential or didn't realize how eager Sumitomo was to sell.
Zions said it is paying about 1.3 times tangible book value for Sumitomo, a fairly cheap purchase price when compared with recent deals. Because so much of the company is owned by Sumitomo, the stock is very thinly traded.
Zions will combine Sumitomo with another pending acquisition and its San Diego-based subsidiary Grossmont Bank to create a $6-billion bank with 60 California branches.
"They are about the last people I would expect to buy Sumitomo. That's very, very surprising," because of Zions' relatively small size, said Bert Ely, whose Ely & Co. banking consulting firm is in Alexandria, Va. "This is a huge move for Zions."
The acquisition, which must be approved by regulators and shareholders, is expected to close in the third quarter.
With the acquisition, Zions will face some major challenges, including how to best keep Sumitomo's deposits, Ely said.
"One challenge will be whether Zions can retain Sumitomo's customer base, many of whom are Japanese and may not want to remain," Ely said.
Any sale of an Asian-owned bank in California will not significantly alter the banking landscape here, as these institutions combined account for about only 8% of the market, according to SNL Securities, a data firm.
The largest Asian-owned bank in the state is Union Bank of California. Based in San Francisco, Union Bank has about $30.6 billion in assets, making it the third-largest commercial bank in the state. It has about 237 branches in California, five offices in Oregon and Washington, and 18 international facilities, primarily along the Pacific Rim. Its parent is Bank of Tokyo-Mitsubishi.
The next largest, with $8.1 billion in assets, is Sanwa Bank California, owned by Sanwa Bank. Sumitomo is third.
Sumitomo shares fell 38 cents to close at $50.50 a share, and Zions shares rose 25 cents to $49.50. Both trade on Nasdaq.
The announcement was made after the markets closed Wednesday.