BB&T and Suntrust join forces in $ 66 billion merger
A more permissive regulatory environment culminated Thursday with the biggest bank merger since the 2007-2009 financial crisis, and more deals are likely, analysts and investors said.
The banks hope to close the deal later this year. The timing would have been unlikely before President Donald Trump’s administration began to ease crisis-era regulations, which had limited expansion and tightened bank supervision.
The merger will pressure other regional banks to consider their own deals, analysts said.
“The BB&T / SunTrust merger will further open our eyes to the potential for larger bank mergers and acquisitions,” Jefferies analyst Ken Usdin wrote in a client note.
Bank of America chief executive Brian Moynihan predicted another wave of major bank mergers this year at the World Economic Forum in Davos, Switzerland.
Not everyone was happy with the deal.
“This proposed merger between SunTrust and BB&T is a direct consequence of the deregulation program that Trump and the Republicans in Congress have advanced,” said Maxine Waters, chair of the House Financial Services Committee.
“The proposed merger raises many questions and deserves close scrutiny by banking regulators, Congress and the public to determine its impact and whether it would create a public benefit for consumers.”
BB&T and SunTrust said the combined bank would deliver annual cost savings of about $ 1.6 billion by 2022. In an interview with CNBC, executives said the merger would allow them to invest more in new technologies requested by customers.
“The business has changed and will change,” said SunTrust CEO William Rogers. “It gives us the opportunity to be absolutely the most competitive bank.”
The combined company will operate under a new name and have approximately $ 442 billion in assets, $ 301 billion in loans and $ 324 billion in deposits. It will compete with US Bancorp, which has around $ 467 billion in assets.
Its footprint will cover the east coast of the United States, with a new headquarters in Charlotte, North Carolina. The combined company will maintain operations in Winston-Salem, North Carolina, and Atlanta, Georgia, the two companies’ home markets.
The two banks have long been viewed as natural partners, and advisers said they didn’t expect another bank to make an offer. Hostile takeovers are rare in the banking world.
The banks entered the deal from a position of strength, analysts said. Each reported strong fourth-quarter earnings last month and there was no sign of pressure halfway through, said Terry McEvoy, chief executive of Stephens.
“The end result of the transaction is a very powerful company in some of the best markets in the United States,” he said.
Analysts largely expect regulators to approve the deal, although it should attract the attention of vocal critics from banks like Senators Elizabeth Warren and Bernie Sanders as well as the Democratic-controlled House.
“They are two very clean banks. So at the end of the day (this) should be done,” said Stephen Scouten, analyst at Sandler O’Neill.
The combined company will remain comfortably below the asset threshold that would make it a consistently large financial institution, sparing it increased regulatory oversight.
Shares of Atlanta-based SunTrust jumped 8.3% to $ 63.62, above the purchase price, while BB&T rose 2.4% to $ 49.71.
McEvoy said he expects the positive market reaction to the deal to result in similar deals throughout the year. Shares of regional banks including KeyCorp, Comerica Inc and Regions Financial rallied on Thursday.
Super-regional banks, which typically have between $ 50 billion and $ 500 billion in assets, are wondering how to grow with fewer resources than the four largest U.S. banks like JPMorgan Chase and Bank of America.
Talks between the two banks began in 2018, according to advisers. Even though BB&T shareholders will end up with a majority of shares, a key point for SunTrust was that the deal would treat banks equally.
The two banks have hundreds of branches within two miles of each other, but they serve different segments of the market. SunTrust has more of a business orientation and larger customers, while BB&T has a significant insurance business.
Transaction activity in the banking sector languished after the financial crisis as stricter rules were imposed on lenders with more than $ 50 billion in assets and regulators barred banks with compliance issues from develop.
Changes to U.S. tax laws have cut corporate taxes, freeing up capital, and Wall Street has long expected a surge in banking transactions.
On December 7, the Federal Reserve quickly approved two of the biggest bank mergers of the year, the Cadence Bancorps merger with State Bank Financial Corporation and the Synovus Financial merger with FCB Financial Holdings.
A memo from Wachtell Lipton said the speed of approvals was evidence of an “increasingly favorable regulatory environment for bank mergers and acquisitions.”
As part of the deal, SunTrust shareholders will receive 1,295 BB&T shares for each share they own. The deal’s value per share of $ 62.85 is at a 7% premium to SunTrust’s closing price on Wednesday, according to a Reuters calculation.
BB&T shareholders will own 57% of the combined company and SunTrust will own the remainder. Kelly King, CEO of BB&T, will be CEO until September 12, 2021, after which Rogers, CEO of SunTrust, will take over.
The two companies called it a peer-to-peer merger valued at $ 66 billion.
RBC and Wachtell, Lipton, Rosen & Katz advised BB&T. Goldman Sachs, along with the investment banking unit of SunTrust and Sullivan & Cromwell, advised SunTrust.
A customer uses an automated teller machine (ATM) at a branch of SunTrust Banks Inc. in Washington, DC, United States on Thursday, January 11, 2018. SunTrust Banks Inc. is expected to report its results on January 19. Photographer :
Andrew Harrer | Bloomberg | Getty Images
As part of the deal, SunTrust shareholders will receive 1,295 BB&T shares for each share they own. The deal’s value per share of $ 62.85 is up 7% from SunTrust’s closing price on Wednesday, according to a Reuters calculation.
Shares of Atlanta-based SunTrust rose 10% to $ 64.60 before the opening bell, above the purchase price, while those of BB&T rose 5% to $ 51.20 .
BB&T shareholders will own 57% of the combined company and SunTrust will own the remainder.
Brokerage analyst Stephen Scouten of Sandler O’Neill said he expects the deal to get regulatory approval. “They are two very clean banks. So at the end of the day (this) should be done.”
The deal, which is expected to close in the fourth quarter, is likely to result in annual savings of around $ 1.6 billion by 2022, the companies said. The merger will generate an internal rate of return of approximately 18%.
Kelly King, CEO of BB&T, will be CEO of the merged company until September 12, 2021, after which SunTrust CEO William Rogers Jr will take over.