SunTrust, BB&T Bank Merger Is Biggest In 10 Years, All-Stock Deal Worth $66B

It is the marriage season in the American banking sector. The good news is that the first time after the financial crisis in 2007-2009, a mega banking merger has been announced. The all stocks merger between SunTrust Bank and BB&T Corp will create America’s sixth-biggest commercial bank.

The banks called the deal “a merger of equals,” and announced that the deal is valued at $66 billion.

“The combination provides the scale needed to compete and win in the rapidly evolving world of financial services,” noted BB&T CEO Kelly King, who will continue as the CEO of the new company.

The merged banks will cover the entire East Coast with corporate headquarters coming up in Charlotte, North Carolina.

Under the deal, SunTrust investors will receive 1.295 shares of BB&T for each stock plus a 5 percent hike in their dividend. BB&T owns 57 percent of the combined group's $28.24 billion in equity with SunTrust holding the balance 43 percent.

B&T and SunTrust had been direct competitors in many cities.

Post-merger, they will take top-3 market share in eight states. The merger will also save them at least $1.6 billion in annual cost savings by 2022, the banks said.

New name soon

The combined company will take up a new name. Collectively, their assets will be around $442 billion, with $301 billion locked in loans and $324 billion in deposits. The combined entity will be in a position to raise stiff competition to rival U.S. Bancorp that has $467 billion in assets.

SunTrust claimed the deal would create a company with a customer base of around 10 million American households.

The Trump administration’s efforts to lower crisis-era regulations are helping the banks to expand. Lowering of corporate tax released capital and deal-making in the banking sector looked imminent.

Economies of scale

According to the merging banks, the deal will bring them more economies of scale in terms of investment in technology, 10 percent reduction in combined expenses after weeding out duplicate branches and digital systems.

Commenting on the merger, Baird analyst David George said in a note that BBT/STI deal is incrementally positive for both companies. This is what the sector needs as the growth outlook is tough over the near to intermediate term.

“We believe the industry needs many lower premium deals in order to reduce the overcapacity in the sector in a shareholder-friendly way. This deal accomplishes that.”

It also noted the main challenge before the American banking sector is falling margins and the flattening of the so-called yield curve.