The Big Banks Get Bigger in a Merger of Equals

The predictions of more merger activity in the financial services industry is coming true. On the heels of the mega-merger of processors Fiserv and First Data, comes today’s announcement of the merger of BB&T and SunTrust Banks. Here’s the deal summary as reported in Bloomberg:

• BB&T will  buy SunTrust Banks for $28 Billion in an all-stock deal
• The combined bank will be the 6^th largest in the US, with approximately $442 billion in assets
• The merged entity will have a new name, yet to be determine
• Headquarters will move to Charlotte, NC
• BB&T CEO Kelly King will serve as CEO of the combined company through Sept. 12, 2021, when SunTrust CEO William H. Rogers will take over. King will serve a further six months as executive chairman

The new, yet-to-be-named bank will “own” the south

Both banks have long and storied past in the southern U.S. and together will have a commanding presence once the merger, anticipated in 4^th quarter, is completed. They will manage $301 billion in loans, $324 billion in deposits, and serve 10 million households:

BB&T, founded in the aftermath of the Civil War, and SunTrust, chartered in Georgia in 1891, had been direct competitors in many cities. They said they’ll now have top-3 market share in eight states. The transaction will deliver at least $1.6 billion in annual cost savings by 2022, the companies said. 

Tech investment needs will spur additional bank mergers

The reasons for the merger are ones that we are likely to see again and again, namely size helps to compete and drive efficiencies. This is particularly true when investments are needed to update old platforms and systems to support the demands of clients for new, faster and improved services:

The banks said the deal will allow more investment in technology while cutting more than 10 percent of combined total expenses through eliminating duplicate branches and digital systems. The company will create an “Innovation and Technology Center” in its new headquarters, and the statement on the deal used the words technology, digital and innovation more than a dozen times.

The combination “provides the scale needed to compete and win in the rapidly evolving world of financial services,” BB&T CEO Kelly King, who will keep that title at the new company, said in the banks’ joint statement Thursday.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group