Partnerships / Acquisitions

BB&T, SunTrust Announce ‘Merger Of Equals’ To Create Sixth-Largest US Bank

BB&T, SunTrust Announce ‘Merger Of Equals’

Two of the nation’s largest regional banks – Winston-Salem N.C.-headquartered BB&T and Atlanta-based SunTrust – are joining forces in a bid to compete with the nation’s biggest players, care of a $66 billion merger.

The newly combined entity will be the sixth-largest U.S. bank, based on assets and deposits.

“It’s an extraordinarily attractive financial proposition that provides the scale needed to compete and win in the rapidly evolving world of financial services,” BB&T CEO Kelly King said in a statement.

Some outlets have been reporting the deal as an acquisition, since BB&T will buy SunTrust Banks for about $28 billion in an all-stock deal – though throughout the conference call that followed the announcement, both King and SunTrust CEO William Rogers repeatedly emphasized that the deal was not a matter of one bank acquiring another, but instead a “merger of equals” designed to create an entirely new bank that is stronger than the sum of its parts.

“This is one of the rare times where we think you can combine two plus two and get five,” Rogers noted on the call.

The new bank will have a new name, which as of yet has not been determined, as well as a new headquarters in Charlotte, North Carolina. That city will also be the location of a new innovation and technology center that the newly created bank intends to build, with the goal of being on the “cutting-edge of digital and technological advances in financial services,” according to King.

King will serve as chairman and CEO of the combined company until Sept. 12, 2021, after which he will serve as executive chairman for six months and on the board of directors until the end of 2023. Rogers will serve as the combined company’s president and COO until Sept. 12, 2021, after which he will become CEO for six months and then will become chairman and CEO. Rogers will also serve on the board of directors. The executive management team will be comprised of 14 members, seven of whom will come from BB&T and seven from SunTrust.

As a single entity, BB&T and SunTrust will have about $442 billion in assets, $301 billion in loans and $324 billion in deposits, making it a direct rival for U.S. Bancorp, which has about $467 billion in assets. The deal is expected to close in the fourth quarter, pending regulatory approval. Analysts on the conference call were somewhat concerned about regulatory issues, and whether the banks anticipated any issues given the tremendous amount of overlap in the areas of operation.

King noted that while he could not discuss the content of any conversations they’ve had with regulatory entities of late, they are in regular contact with them, and “would not have announced anything this big this publicly if we weren’t very confident it would easily clear regulatory scrutiny.”

“These are both very clean banks. So ultimately, (it) should get done,” Analyst Stephen Scouten of brokerage Sandler O’Neill told CNBC.

The merger marks the first major banking sector deal since the 2008 financial crisis. It also comes about a month after Bank of America CEO Brian Moynihan commented at the World Economic Forum in Davos that it would take a round of U.S. bank mergers to produce a new rival to his firm.

Challenge accepted, it seems.

And the two-banks-into one certainly aim to be a challenge, with both King and Rogers noting on the call the banks’ similar cultures, similarly conservative approaches to risk management and similar dedication to customer service – not to mention their tremendous degree of geographic co-location – will enable consumer offerings that they intend to be a “best-in-class, premier offering in American banking.”

They aren’t kidding about close physical proximity, as 25 percent of each of the bank’s locations are within two miles of one of the other bank’s locations, executives noted on the call.

The deal, according to the firms, will likely result in annual cost savings of around $1.6 billion by 2022, generating an internal rate of return of about 18 percent.

And while those funds are important, executives noted, they are really just the tip of the iceberg when it comes to the future of the combined banking entity.

As King pointed out, those saved funds will be used to pave a pathway to the high-tech, innovative offerings that will be required to remain competitive in the future financial services space. Those offerings, he added, are greatly helped by scale – and as the sixth largest banking player in the U.S., the new bank will certainly have that.

“What we see here is a coming together of two strong foundations to create not only a different bank, but a premier financial institution,” he said.

It’s a big goal – but, as Rogers noted, staying competitive in the future of financial services will require thinking big and doing more for customers in more parts of their lives – and SunTrust and BB&T can do far more together than apart.

More details are still forthcoming, the name of the new bank chief among them. The goal is for a fourth-quarter closing. Both King and Rogers noted that meetings and planning will be ongoing between now and then, so that “when the marriage is legal,” the entity can start executing immediately.

Whether the news from BB&T and SunTrust kicks off the wave of bank mergers and acquisitions that some analysts had been forecasting for 2019 remains to be seen.

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