DBRS Rates UnionBanCal Corporation at “A”

Dominion Bond Rating Service (“DBRS”) has today assigned ratings to UnionBanCal Corporation (“UB” or the “Holding Company”) and its principal operating bank subsidiary, Union Bank of California, N.A. (the “Bank”), as indicated above. The trends are Stable.

The ratings of Union Bank of California, N.A. reflect strong and sustainable earnings arising from a robust deposit franchise, a diversified revenue mix, and an efficient operating platform. Asset quality, much improved over the past three years in response to tighter lending criteria and reduced exposure to higher-risk loan categories, is in line with that of the Bank’s peers rated similarly by DBRS. The ratings also take into account modest risk concentrations in some volatile industries, and the challenges faced by the Bank in maintaining core earnings growth in a highly competitive environment.

The Bank benefits from substantial deposit market shares in California’s major metropolitan areas. Core deposits, an unusually high 52% of which are non-interest-bearing deposits, account for 120% of the loan portfolio (Q1 2005). About half of all deposits come from commercial clients, which are anchored by multi-product relationships, including cash management and other operating services. Core deposits, due to their favourable composition and large relative size, contribute significantly to the Bank’s strong liquidity, above-average profitability, and moderate interest rate risk exposure. Reliance on less stable – and more costly – CDs and wholesale funding is minimal.

The Bank’s customer base is highly diversified, resulting in stable and sustainable earnings. The client base includes relationships in the consumer, small business, middle market, real estate, and corporate and correspondent banking sectors. In addition to various loan products, the Bank provides investment and financial management, trust services, private banking, insurance services, and global custody. Fees and commissions account for a healthy 38% of net revenues (Q1 2005). Some of these businesses are highly stable throughout an economic cycle, such as trust, custody, and insurance, and some are countercyclical to others, such as deposits and the mortgage business.

The inexpensive funding base, diversified product mix, and an efficient operating platform produce above-average profitability for the Bank relative to peers. For 2004 the Bank reported 1.62% return on assets (ROA), 4.02% net interest margin (NIM), and 2.83% risk-adjusted profitability. These metrics compare favourably with the medians for those of peers rated by DBRS at 1.45%, 3.65%, and 2.35%, respectively.

The ratings of UB take into account the Holding Company’s conservative risk profile, which is evidenced by low double-leverage and ample stand-alone liquidity to cover its operating expenses and debt service obligations. DBRS expects the Holding Company to maintain a conservative risk profile because of the strong capital generation capacity of the Bank, a history of moderate dividend payments and small acquisitions, and conservative stock repurchases.

UB’s ratings ignore the Holding Company’s 61% ownership by the Bank of Tokyo-Mitsubishi (“BTM”). DBRS takes this view because of UB’s historical operating independence, a Board of Directors that reflects a public rather than closely held company, and the lack of financial benefit derived by UB from its affiliation with BTM. Moreover, DBRS believes that U.S. bank regulators would interfere in the unlikely event that BTM were to weaken UB’s credit fundamentals by any means.

UnionBanCal Corporation, a financial services holding company headquartered in San Francisco, California, reported US$49.4 billion in balance sheet assets at March 31, 2005.

Note:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.