SunTrust BB&T Merger

BB&T And SunTrust Set To Become the 6th Largest U.S. Retail Bank

The wave of bank mergers has started. Brian Moynihan, CEO of BofA, called it “simply a matter of time,” earlier this year at the World Economic Forum in Davos. Today, BB&T and SunTrust announced a $66 billion merger. If the deal goes through, they will become the sixth largest bank in the United States based on assets and deposits. Based on assets alone they will be the seventh largest bank.

What will the 6th largest bank in the United States look like?

The combined company — the new name is yet to be disclosed — will have around $442 billion in assets, $301 billion in loans and $324 billion in deposits. SunTrust and B&T executives hope the merger will allow them to compete with larger banks, such as Bank of America, Wells Fargo, and Chase.

Both banks are treating this as a merger among equals. However, BB&T is the larger corporation and will own 57% of the combined company.

The new bank will cover the U.S. East Coast. It will have its corporate headquarters in Charlotte, North Carolina, and will keep operations in Winston-Salem, North Carolina, and Atlanta.

The largest banks in the United States

RankBankHeadquartersTotal Assets (billions)
1JPMorgan ChaseNew York City$2,615.00
2Bank of AmericaCharlotte, North Carolina$2,338.00
3CitigroupNew York City$1,925.00
4Wells FargoSan Francisco, California$1,872.00
5Goldman SachsNew York City$957.00
6Morgan StanleyNew York City$865.00
7U.S. BancorpMinneapolis, Minnesota$464.00
16BB&TWinston-Salem, North Carolina$225.00
17SunTrust BankAtlanta, Georgia$216.00

After the news of the buy-out shares of SunTrust jumped by 8.3% to $63.62, which is higher than the acquisition price. Shares in BB&T rose 2.4% to $49.71.

Mergers sound much better than buyouts

Both banks are treating this as a merger among equals. However, BB&T is the larger corporation and will own 57% of the combined company.

In reality, BB&T is buying out SunTrust in a stock deal and calling it a merger to maintain its reputation. This is an all-share buyout, which means BB&T is purchasing SunTrust in exchange for shares in the new company.

Why do banks merge?

As far as bank mergers go, this is an excellent match. Together they can benefit from economies of scale, reduce costs, and invest in the technologies and services that attract customers to the big banks.

These are the benefits that have fueled the increase in buyouts and mergers in the last forty years. In the 1980s, there were over 14,000 banks in the United States (source). Now we only have 5,700.

However, this is not just a merger of two competitors to cut costs and increase market share. It’s also an opportunity for both banks to diversify their portfolio. BB&T has a strong presence in the insurance business and focuses on retail personal accounts. SunTrust, which is also the owner of online auto and personal loans lender LightStream, is strong in the commercial sector and targets high-net-worth clients.

This may be the first major merger since the recession, but it will not be the last. Expect a flurry of buyouts and mergers as small and mid-size bank rushing to remain competitive in a market of banking behemoths.