At the time of the announcement, SunTrust was valued at roughly $28 billion and the combined company, including BB&T, valued at about $66 billion. This is the largest deal the banking industry has seen since the Bank of America/Merrill Lynch transaction that took place over a decade ago. The all-stock deal is expected to close in Q4 2019. The combined company will be based in Charlotte, NC and its new name is TBD.
There will be a 50/50 board and management split. BB&T's Chairman & CEO, Kelly King, will serve in the same capacity at the combined company while SunTrust's Chairman & CEO, William Rogers, Jr., serves as President & COO. After September 12, 2021, William Rogers, Jr. will replace Kelly King as CEO.
BB&T's Kelly King said that "client-facing, performing associates" at both banks should rest assured — "don't worry, you have a job," he says. Among other synergies, cost savings related to facilities and retail banking were clearly noted. The combined company estimates $1.6 billion in net cost synergies by 2022.
Both banks hold significant market share in the Southeastern United States. The combined company will serve roughly 10 million households with a top three deposit ranking in eight states. After a quick look at their respective geographic footprints, it is inevitable that branch consolidation will take place. Although BB&T has a greater presence in rural areas, approximately 24% (or 740) of the combined bank's branches will be within two miles of one another. Zoom in and the toggle the settings of our map to take a look for yourself.
Widely touted as a core driver behind the deal, technology is no doubt top of mind. We can expect a significant portion of any cost savings to be poured into investments in technology. SunTrust has an innovative digital consumer-lending platform that will benefit the combined company; however, further technology investment is a must to stay relevant in this increasingly digital era.
In 2018, BB&T's technology spend for the year was roughly $1.1 billion while Bank of America's was roughly $10 billion. Though somewhat proportionate to their relative sizes, there are other concerns on the horizon that warrant increased investment and scale. Amazon purportedly has its eyes on banking and is looking for a bank to partner with. A study conducted by Bain showed that roughly 66% of Amazon Prime users would be interested in opening an Amazon bank account that offered 2% cash bank on all Amazon purchases. Considering that there are approximately 100 million paying Amazon Prime subscribers, this possibility is certainly valid cause for concern among banking executives. Goldman Sachs and Apple also recently partnered to offer a new consumer credit card. Perhaps other banks will follow suit and partner with tech giants; either way, it is safe to say that the technological arms race is underway.
BB&T and SunTrust are similar in many respects; however, there are some key differences, if properly leveraged, that can help propel the combined bank to profitable growth. On paper the lending profiles appear similar, but we think the non-lending components of their businesses present a unique opportunity.
For example, BB&T's insurance brokerage operations make it a top 10 insurance broker in the world with revenues approaching $2 billion. Conversely, SunTrust has successful middle-market investment banking & capital markets operations with revenues over $300 million. Together, the combined company will also enjoy about $500 million in gross fiduciary/trust income.
In all areas where the two banks are similar, cost cutting will be significant. In all areas where the banks differ, cross selling will be the goal. It will of course require significant effort and capital to successfully integrate these banking giants; though, keep in mind that the $1.6 billion in estimated cost savings, which some spectators feel is conservative, is net of investment... meaning we will likely see billions in total cuts.
Individually, both banks were wildly successful on their own — each earning about $3 billion in profit in 2018. Together, they will be better positioned to fight the technological battle and to compete with the other banking behemoths in the United States.
If successful, it is possible that the combined company can take the #5 spot, in terms of assets, from US Bank; however, achieving greater scale and taking the #4 spot is highly unlikely. A global footprint, or at least a presence in the Western United States, will be required for such growth. Even then it is a long shot. An additional $1T+ in assets, yes trillion with a "T", is needed to be in contention with JPMorgan, Bank of America, Wells Fargo, or Citi.
Nonetheless, this transaction may spur increased M&A activity among regional banks. Although the regulatory environment has been more laxed as of late, we see zero political or regulatory appetite for deals any larger than this one. In the coming years, however, we would not be surprised to 1) see tangible attempts to break up the largest banks or 2) see even larger transactions, whether bank-to-bank or otherwise, justified by increasing competition from big tech. Only time will tell.
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