Deal Would Create State’s 4th-Largest Bank : Finance: Merged Union Bank and Bank of California would have $25 billion in assets. Institutions say they expect to cut 850 jobs.

SAN FRANCISCO —  Bank of California and Union Bank said their boards approved the merger of their companies, a deal that would form California’s fourth-largest bank, with $25 billion in assets.

In Thursday’s announcement, the two banks said they expect to cut $90 million from their combined annual costs, before taxes, by 1998. They said they expect to cut 850 jobs, many through attrition. The banks now have the equivalent of 9,900 full-time employees.

The new bank will be called Union Bank of California. Their merger mirrors the proposed combination of the Japanese banks that control them. Union Bank is 72% owned by Bank of Tokyo Ltd. and Bank of California is a wholly owned unit of Mitsubishi Ltd.

Bank of Tokyo and Mitsubishi plan to complete their merger April 1, displacing Sumitomo Bank as the world’s biggest bank, with $729 billion in assets. The bank will be nearly three times as big as Citicorp, the largest U.S. bank, with assets of $257 billion.

The two Japanese banks announced the proposed merger last March, and the two California banks said in May that they too would merge.

Union Bank has more than $18 billion in assets and more than 200 offices throughout California, as well as five overseas branches.

Bank of California has more than $7 billion in assets and 46 branches in California, Oregon and Washington, as well as 11 overseas offices, principally in the Pacific Rim.

Technically, Union Bank is buying Bank of California by issuing 18.1 million new shares to the new Japanese parent company.

Bank of Tokyo-Mitsubishi Ltd. would own 81% of the new Union Bank of California, with the rest held by public shareholders.

The new bank would be based in San Francisco, where both companies now have their headquarters.

The banks said they expect to take a pretax charge of $90 million against earnings in the quarter after the merger is completed. They are scheduled to merge April 1, the same day their parents are to combine.

Union Bank shares fell $2.50 to $53 in trading Thursday on the Nasdaq. Bank of California is privately held.

Union Bank of California would rank as the 33rd-biggest bank holding company in the United States, just behind State Street Boston Corp.