Union Bank to Cut Staff by 15%
Union Bank of California said Monday that it will cut about 15% of its work force in a bid to boost profit--and perhaps make itself a more attractive takeover target in the state’s increasingly competitive banking market.
Fulfilling a pledge made earlier this year to slim down operations and become more efficient, Union said it will cut 1,400 jobs statewide during the next 18 months while increasing investment in technology and automation.
The cuts will be heaviest in Southern California, where about two-thirds of the bank’s 9,745 employees work. About 900 to 1,000 of the layoffs will occur in Los Angeles, Orange and San Diego counties, said Richard C. Hartnack, Union’s vice chairman.
Most of the cuts will be in back-office operations; no teller layoffs or branch closures are planned, Hartnack said. Union Bank has made customer service a cornerstone of its latest advertising campaign.
“We are not cutting people that are providing service directly to the customer,” Hartnack said. “I would say that we would have more tellers at the end of this than we have today because as we grow, we actually increase teller hours.”
With $32 billion in assets, Union Bank is the state’s fourth-largest financial institution, after Charlotte, N.C.-based Bank of America, San Francisco-based Wells Fargo and Seattle-based Washington Mutual. Union’s parent, UnionBanCal Corp., is 64%-owned by Toyko-based Bank of Toyko-Mitsubishi and has 241 offices in California.
While the raw numbers are smaller, the layoffs would be proportionally greater than the cuts of 5% or so expected as a result of mergers undertaken last year by Bank of America and Wells Fargo. Bank of America said it planned to trim 8,000 of its 180,000 jobs, and Wells predicted 4,600 of its 92,000 positions would be eliminated. Washington Mutual said it expected to cut 3,500 jobs, or 15% of its work force, after its 1998 merger with Home Savings Bank.
Union Bank expects to incur a one-time, $85-million charge in the third quarter to pay for the layoffs and restructuring, which it said would eventually save $135 million in reduced expenses while gaining $90 million in additional revenue. Hartnack said the bank plans to improve its Internet and telephone services, consolidate its private and trust banking, and automate processes and reports now done by hand.
Analysts praised Union’s effort to streamline operations, saying the restructuring is long overdue and should eliminate redundancies created after Union Bank’s 1996 merger with Bank of California.
“It’s an attractive stock, but the rub has always been the bank’s efficiency,” said Tom Theurkauf, an analyst at Keefe Bruyette & Woods in New York. “This project suggests they are making some progress on that.”
Union officials say the restructuring should improve the bank’s efficiency ratio--a widely watched indicator of how well a bank is handling expenses--to 54% to 56% from a relatively high 63% as of June 30. The ratio essentially measures a bank’s costs against its income.
Analysts have speculated in recent months that the bank could be a prime takeover target for a buyer looking to boost its California presence, such as Minneapolis-based U.S. Bancorp, Detroit’s Comerica Inc. or Salt Lake City’s Zions Bancorporation, all of which have bought or shopped for banks in Southern California recently.
“The California market is getting a lot more aggressive and competitive, particularly with the new Wells Fargo and the new Bank of America,” said Bert Ely, a banking consultant in Arlington, Va. Wells Fargo was taken over by Minneapolis-based Norwest Corp. last year while Bank of America was bought out by NationsBank. “There’s a lot of out-of-state management coming to California, and I wonder if this [restructuring] isn’t shaping Union up for a sale.”
While stopping short of saying the bank was on the block, Union’s Hartnack said the restructuring will help the bank command a bigger premium if shareholders decide the bank should be sold.
“We would be the most attractive franchise in the Western United States, no question,” Hartnack said. “We should live up to that billing, and a 63% [efficiency] ratio is not living up to that billing.”
Shareholder influence at the bank has grown since February, when Union’s parent reduced its 82% stake in the bank in a secondary stock offering. That was also the month the bank hired Los Angeles consulting firm EHS Partners to review the company.
“We have a whole new group of shareholders with the February stock offering who are motivated by the value of their holdings, not by history or memories,” Hartnack said. The restructuring “is based on a promise that we would make this a high-growth, high-earnings company.”
The company’s stock, which rose 25 cents on Monday to close at $38.50 on the New York Stock Exchange, is up 13% for the year, compared with 3.5% for the Standard & Poor’s financials index.
“Union’s performance to date has been respectable, but there’s plenty of work to be done,” said Joseph Morford, analyst at Dain Rauscher Wessels in San Francisco. “By improving the operation, the Japanese parent could realize a greater value in its investment” in a sale.
The trick will be pulling off the restructuring without alienating customers, analysts agreed. Customer service has been “one of the major ways Union differentiates itself from either BofA or Wells,” Morford said.
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Union’s Growth
Union Bank of California said it will cut 1,400 jobs statewide in an attempt to boost profit and possibly make itself an attractive takeover target. The bank’s net income and assets have grown substantially over the last five years:
Net Income
In millions
1998: $466.5 million
*
Assets
In billions
1998: $32.3 billion
Sources: Bloomberg News, company reports
