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Regional banks BB&T, SunTrust join to create $66B operator
ATLANTA — Southern regional banks BB&T and SunTrust are combining in an all-stock deal to create a new bank valued at about $66 is suntrust merging with bb&t banks said Thursday that the combined company will be the sixth-largest U.S. bank based on assets and deposits. It will have approximately $442 billion in assets, $301 billion in loans and $324 billion in deposits serving more than 10 million households.
Regional banks can be a bellwether for local economies and the willingness to pursue a deal of this size can be taken as a signal of optimism. The U.S. economy was sizzling in last year. The Commerce Department estimated last month that the economy, as measured by the gross domestic product, grew at a brisk 3.4 percent annual percent rate in the July-September quarter
"It's an extraordinarily attractive financial proposition that provides the scale needed to compete and win in the rapidly evolving world of financial services," BB&T Chairman and CEO Kelly King said in a prepared statement.
The combined company will be based in Charlotte, North Carolina, its board and management evenly split between BB&T Corp. and SunTrust Banks Inc. A new name will be chosen before the deal closes in the fourth quarter.
The combined company will keep a community banking center in Winston-Salem, North Carolina, where BB&T is based. It will keep a wholesale banking center in Atlanta, where SunTrust has its headquarters.
SunTrust shareholders will receive 1.295 shares of BB&T for each share they own. BB&T shareholders will own about 57 percent and SunTrust shareholders will own the rest. SunTrust shareholders will receive a 5 percent increase in their dividend once the deal is complete.
Shares of SunTrust jumped 9.8 percent before the market open, while BB&T's stock rose 5.5 percent.
Confused by Recent Bank Mergers of Equals? Look at Truist to Better Understand
The market has met several noteworthy mergers of equals (MOEs) in the banking industry with skepticism this year, questioning whether the deals will really provide more value long-term than each of the banks could have created on their own. An MOE in banking is when two institutions, usually around the same size in terms of assets, merge with the intention of building a new bank that really takes large parts of each institution and their various business lines. A traditional acquisition is more about one bank buying a smaller bank to take advantage of costs saves and maybe a new revenue opportunity or two.
In April, BancorpSouth and Cadence Bancorporation said they would partner to create a $44 billion asset bank in the South. About a week later, Webster Financial and Sterling Bancorp said they would join hands in another MOE that would create a $63 billion asset bank in first tennessee personal banking online Northeast. Both BancorpSouth and Webster, the technical buyers in the deal, have seen their stock prices slide since announcing the MOEs.
It's certainly fair for investors to question the game-changing deals, because these banks are more or less altering their strategies fairly significantly, so they may see it as a pretty big gamble. But to understand how these MOEs can work, let's look at Truist Financial(NYSE:TFC), the product of one of the largest-ever MOEs, and see if we can glean some insights on these complex deals.
How the Truist deal is going
In February 2019, the $226 billion asset BB&T Bank in North Carolina and the $216 billion asset SunTrust Bank in Atlanta announced they would partner in a MOE that would create the sixth-largest bank in the U.S. Although BB&T was technically the buyer in the deal, the new entity would have a new name: Truist. It was the largest bank deal announced in more than a decade.
How was that intended to play out? Truist was going to have a best-in-class adjusted efficiency ratio (expenses expressed as a percentage of revenue, so lower is better) of 51% and a return on tangible common is suntrust merging with bb&t (ROTCE) of 22%. The two banks also said the deal would immediately grow BB&T's tangible book value, or the value of a bank's tangible assets, by 6% upon the closing of the deal at the end of 2019.
And the deal was also supposed to be accretive to BB&T's and SunTrust's earnings per share (EPS) by 13% and 9%, respectively, at the end of 2021, based on estimates. That means that each of their earnings would be that much higher as a combined entity than what they would have been on a stand-alone basis. Part of achieving these metrics would involve eliminating is apple cider vinegar and honey good for you billion, or roughly 12.5%, of the company's total combined expenses.
Image source: Getty Images.
At the end of the first quarter of this year, Truist had grown total assets to more than $517 billion. The bank reported a 16.4% ROTCE and reported an adjusted efficiency ratio of just under 57%. At the end of last year, the company had cut $640 million in expenses, and plans to reach $1.04 billion by the end of this year. It then plans to reach is suntrust merging with bb&t total $1.6 billion in expense cuts by the end of 2022, which is on schedule. Given where Truist's efficiency ratio and ROTCE are trending, it does seem like the bank could be at or near its planned targets once the cost savings are achieved.
However, the promised EPS accretion for each bank does not look like it will materialize this year. Back in 2019, management based the 13% and 9% accretion numbers on Truist generating $5.59 EPS this year. Analysts on average are currently projecting Truist to generate EPS of $4.62, with a high estimate of $5. The estimates could certainly be off, and I'm sure neither management team had the pandemic in mind when they made these projections in 2019.
At the end of the first quarter, tangible book value per share at Truist had fallen slightly from where is suntrust merging with bb&t was when the deal closed in 2019 after the immediate 6% growth. One could probably argue that both banks on their own could have grown tangible book value per share by more than 6% since 2019, but with 22% ROTCE expected in the future, the bank is positioning for faster tangible book growth long term.
Investing in technology
If you haven't heard it already, one of the top reasons cited for bank mergers and acquisitions is to free up more capital in order to further invest and build out digital capabilities. Some of the larger banks in the country, like JPMorgan Chase, now regularly spend in excess of $10 billion or $11 billion a year on technology.
From the start, Truist pledged to invest in technology as part of its $1.5 billion one-time merger costs. The bank also plans to open an innovation and technology center in Charlotte, North Carolina, to drive digital transformation. Initially, the bank said it had specifically set aside about $100 million just for new technology investment outside of cybersecurity, mobile capabilities, and automation.
But those costs have significantly ramped up. Following the fourth quarter of 2020, management at Truist said merger-related costs would increase from $1.5 billion to $2.1 billion, and the bank would spend an additional $1.8 billion on incremental operating expenses that included investments in digital capabilities and the bank's tech platforms. These are all one-time costs that will not be in the bank's run rate following 2022.
While it's hard to know all of the tech capabilities the bank is investing in, management said on an earnings call in January that the bank is building new loan origination platforms that will create better client is suntrust merging with bb&t and lead to more loan applications. Seeing expenses increase like this can spook investors, but Truist CEO Daryl Bible said, "We believe it was for the right reasons and makes all the sense that it's going to help our clients and really produce good performance for our company going forward."
The market seems pleased -- now
Although not yet done with all of the merger work, Truist appears to be on a good path to hitting its future profitability and efficiency goals. It is building a strong bank in growing is suntrust merging with bb&t with lots of revenue diversity, and the market appears to be pleased. Prior to the merger, BB&T traded around 230% of tangible book value, while SunTrust traded at 165% of tangible book value. At recent prices, Truist traded around 262% tangible book value.
While the deal that created Truist is much larger than the BancorpSouth-Cadence and Webster-Sterling deals, it does give us a road map for the trajectory of MOEs. They are chaotic and messy at times, and not every projection will be hit, but they can ultimately create a stronger-performing bank better positioned to compete once finished. While MOEs are perhaps a bigger risk than making a standard smaller acquisition, I think given what we know about the banking industry and the need to scale and invest in digital capabilities, the deals should be looked at optimistically.
Folks out for downtown entertainment Saturday might have noticed a familiar corporate sign coming off an office tower.
BB&T, headquartered in Winston-Salem, North Carolina, officially merged in late 2019 with SunTrust to form Truist, whose sign is now atop the 300 Summers St. tower. Coming at the end of 2019, merger news flew under the radar during the COVID-19 pandemic. Customers have been notified since, and Charleston seems poised to keep a Truist presence here, if sign replacement means anything.
A December 2019 release reads, “The transition to the full Truist experience will occur as systems are integrated over the next two years. There will be no merger-related changes to account numbers or routing numbers for checking, savings and money market accounts for the vast majority of clients. As a result, most clients won’t need to order new checks or make changes to direct deposits, automatic drafts or wire instructions related to these accounts. Clients can find the latest information at Truist.com.”
Truist is the sixth-largest U.S. commercial bank, the release says, serving 10 million consumer households. The deal is characterized as a “merger of equals.”
Downtown businessman Lewis Payne, whose family played a large part in the formation of Kanawha Valley Bank, BB&T’s predecessor, said the merger appears to be more of the same scenario consumers have been witnessing for at least two decades now.
“This is a product of our times, these big bank mergers,” said “It’s probably not as drastic a change for customers, compared to the merger from One Valley Bank to BB&T. There you’re talking about going from a local to a regional bank. Now you’re merging two regional banks. To me that change is not as drastic. You were ofb 17 clothing with a large bank and you’re still dealing with a large bank.”
The Dickinson family, and to a lesser extent the Paynes, started the original Kanawha Valley Bank in 1867, along with other members of the valley’s salt industry. By 1929, only a month prior to the stock market crash, a new and glorious Kanawha Valley Bank rose to its claim as the tallest first citizens bank hartsville sc hours in West Virginia.
Upon completion of the state Capitol building a few years later, it got bumped to No. 2 on the list, where it remains today, only 10 feet higher than Laidley Tower. The Kanawha Valley Building, as it is known today, is still in use as an office building, and several years ago housed a SunTrust bank in its lower, limestone rectangle.
In is suntrust merging with bb&t, Kanawha Valley Bank moved to 300 Summers St., where it became One Valley Bank. Its growth attracted the attention of BB&T, which bought the bank in 2000.
Greg Stone covers business. He can be reached at 304-348-5124 or [email protected]
BB&T and SunTrust pick a name for their merged bank: Truist
BB&T and SunTrust, the US regional lenders merging to become the sixth-largest bank in the country, have settled on a name for the combined bank after four months of consideration.
It will be called Truist.
“Truist is a brand name representative of two mission- and purpose-driven companies coming together to serve our clients as a true financial partner,” said SunTrust chief executive Bill Rogers, who will serve as chief operating officer of Truist.
Kelly King, head of BB&T, will be Truist’s chairman and chief executive.
“True to the heritage of both companies, Truist will reflect what we stand for — a shared belief in building a better future for our clients and communities,” Mr King said.
The US brand consultancy Interbrand led the renaming process. A new logo is yet to be is suntrust merging with bb&t large retail footprint of the two banks, which currently encompasses about 3,000 branch locations throughout the US south-east and mid-Atlantic, will be converted to the new name and branding “over time”, once the merger closes in the latter half of this year, the banks said.
The BB&T-SunTrust merger, announced in February, is the largest bank tie-up since the frenzied mergers among weakened banks during the financial crisis and will create an institution with $450bn in assets. The deal sparked speculation that a much-anticipated merger wave in the fragmented US banking industry had finally arrived.
Their deal was remarkable in structure as well as size. Billed by the two banks as a “true merger of is suntrust merging with bb&t, BB&T bought SunTrust using its shares and did not pay a significant is suntrust merging with bb&t. BB&T and SunTrust shareholders walmart snowman christmas tree split the ownership of the new bank in a ratio of 57 to 43.
The touted “mergers of equals” structure made it awkward to simply drop one of the two names — especially for the smaller SunTrust, which has long been strongly associated with its home city of Atlanta.
While they worked on a new name, the companies temporarily branded themselves as thepremierfinancialinstitution.com.
At the time of the merger, the banks announced that about a quarter of the two banks’ branches were within a few miles of one another. Closing many of those branches is likely to form a large part of the banks’ plan to realise about $1.6bn in annual cost savings by 2022.
What do you think of the name Truist? Can you do better? Let us know in the comments below