US Federal Reserve maintains U.S. bank in lower tier for capital reserves
U.S. Bank has successfully completed its $8 billion acquisition of MUFG Union Bank in December, and since then, the financial institution has been making significant strides to meet its promises of shrinking its assets and reducing its risk profile.
As of Sept. 30, 2021, U.S. Bank had $668 billion in assets. Since then, the bank has executed various asset reductions, including loan sales and securitizations of approximately $7 billion and a reduction of its investment securities portfolio by approximately $30 billion.
The Federal Reserve recently approved U.S. Bank's request to retain its Category III designation, a decision that grants the bank relief from stricter capital requirements reserved for Category II banks. This approval follows Fed Gov. Michelle Bowman's objection to U.S. Bank being reclassified to Category II status as a result of the MUFG Union deal.
The Office of the Comptroller of the Currency estimated that U.S. Bank would have $679.6 billion in total assets and $51.6 billion in capital following the close of the MUFG Union transaction, as of October 2022.
RBC Capital Markets analyst Gerard Cassidy stated that the ability to maintain its Category III status gives U.S. Bank more flexibility to manage its balance sheet over the next two years. He also added that the regulatory change is very positive for U.S. Bank.
U.S. Bank has not rested on its laurels, as it anticipates taking further actions to reduce its projected risk profile, including further net reductions in assets and increases in regulatory capital.
In a separate development, Michael J. Sabatini, Chairman & CEO of First Citizens BancShares, Inc., received approval from the Federal Reserve on October 16, 20XX, to be exempted from certain Category II requirements related to the merger with Union Bank and to be subject to the same capital rules as all other Category III banks. This approval allows First Citizens BancShares to operate under the less stringent capital rules following its acquisition of Union Bank.
