SAN FRANCISCO — Japanese-owned California First Bank said today that it has agreed to acquire Los Angeles-based Union Bank, also foreign-owned, for $750 million in a transaction combining the fifth- and sixth-largest commercial banks in the state.
Seishichi Itoh, president and chief executive officer of California First, said the bank has signed a letter of intent for the acquisition with London-based Standard Chartered PLC, Union's parent company.
A definitive agreement must be signed, and shareholders and regulators must approve the purchase before it becomes final.
The merged bank will have more than $15 billion in assets with 167 offices throughout the state. It will be the fifth-largest California bank, trailing Bank of America, Security Pacific, Wells Fargo and First Interstate.
Bank of Tokyo Ltd. owns 77% of California First, known until several years ago as Bank of Tokyo of California. Cal First currently is the sixth-biggest bank in the state with $6.1 billion in assets and 135 offices, while Union has $9.1 billion in assets and 32 offices.
Analysts said Cal First is paying a $170-million premium over Union Bank's shareholder equity value of about $580 million in order to become more competitive in the state.
"This merger will give California First a substantially enhanced presence in California, although it will still be far smaller than the major banks in the state," said Paul Baastad of S.G. Warburg & Co. in San Francisco.
Dan Williams of Sutro & Co. Inc. in San Francisco said the investment is the largest ever by a Japanese bank in a California financial institution and one of the biggest in any U.S. bank.
Last year, Nippon Life Insurance Co. invested $500 million in Shearson Lehman Bros. Inc. and Sumitomo Bank Ltd. completed a similar-sized investment in Goldman, Sachs & Co. Also last year, a group of Japanese banks and insurance companies bought $350 million in BankAmerica Corp. securities.
"There's certainly some logic in the Japanese having a growing interest in California banks," Williams said. "It also reflects Japanese banks' continuing expansion on a worldwide basis."
Union Bank, which has carved out a niche catering to mid-sized businesses, was put up for sale last year. Standard Chartered had bought it in 1979 for $377 million.
The deal will provide much-needed capital for Standard Chartered, which needs the money to offset its own problems with loans to developing nations.
Union's earnings have been lackluster in recent years. Last Friday, it posted a modest net of $56.3 million for 1987. That was $200,000 less than in 1986.