SunTrust Banks and BB&T have agreed to combine in a $66bn all-stock transaction, in the first big US bank merger since the financial crisis.
The agreement between the two large regional banks will create a new national player with $442bn in assets and $324bn in deposits, that will be able to rival US majors such as PNC, US Bancorp and Capital One. Its $301bn loan book will be about a third of the size of America’s biggest lenders JPMorgan Chase and Wells Fargo.
A combined SunTrust-BB&T would also leapfrog the equity value of international banks such as France’s BNP Paribas and Japan’s Mizuho and will be worth more than Barclays and Deutsche Bank combined.
The deal is a pivotal point for the banking industry, which has been hesitant to strike mega transactions for fear of being blocked or punished by regulators led by the Federal Reserve.
If successful, the merger could be the first of a wave of several deals in an industry that remains fragmented. The number of commercial banks insured by the Federal Deposit Insurance Corporation has been in decline for decades — falling more than 40 per cent since 2000 to just 4,774 institutions but most mergers happened among small banks.
Recent mergers between regional banks — most notably Fifth Third’s $5bn bid for MB Financial in May — have been greeted with scepticism by investors concerned about mergers completed at the peak of the economic and credit cycles.
Regional bank stocks have experienced wild swings in value in recent months on fears of a cyclical downturn, with the KBW regional banking index falling 20 per cent in December only to regain ground this month.
SunTrust stockholders will receive 1.295 shares of BB&T for each SunTrust share they own. Existing BB&T shareholders will own approximately 57 per cent of the combined company, with SunTrust stockholders holding the remaining 43 per cent of the group. As part of the agreement SunTrust shareholders will also receive a 5 per cent increase in their dividend once the deal is closed.
“This is a true merger of equals, combining the best of both companies to create the premier financial institution of the future,” said Kelly King, BB&T chairman and chief executive, who will retain his current title after the companies combine. Mr King will hand over his title as group chief executive to current SunTrust chief William Rogers in 2021.
No name has been revealed, with the combination temporarily branding itself as thepremierfinancialinstitution
The combination is expected to generate an estimated $1.6bn in net cost savings by 2022, the companies said. They also said the merger was expected to generate an internal rate of return of approximately 18 per cent.
The banks expect to complete the deal in the fourth quarter of 2019, once they obtain necessary regulatory approvals.
BB&T shares rose 2 per cent in pre-market trading in New York, while SunTrust climbed more than 7 per cent.
RBC Capital Markets and Wachtell, Lipton, Rosen & Katz advised BB&T, while Goldman Sachs, SunTrust Robinson Humphrey and Sullivan & Cromwell advised SunTrust.
