BB&T and SunTrust Banks have agreed to conduct an all-stock merger of equals that would create an entity worth around $66 billion, making it the largest banking deal since the financial crisis, per Reuters. With new corporate headquarters in Charlotte, the combined bank will become the sixth largest in the US, managing $442 billion in assets, $301 billion in loans and $324 billion in deposits for more than 10 million households across the country.
The deal was likely made possible through a decision made last year by the Donald Trump administration and the Federal Reserve to loosen restrictions on banking mergers that were put in place after the 2008 financial crisis. Despite stock market uncertainty over a pending trade deal between the US and China, both companies' stocks saw gains, with SunTrust (NYSE: STI) starting the day out up nearly 12% and BB&T (NYSE: BBT) receiving a similar 5% increase.
Each bank went into the deal with strong fourth quarter earnings and no signs of financial pressure that would necessitate a merger, per Reuters. Rather, the two regional banks are said to be consolidating in order to address technological needs in a banking industry that's continuously becoming more digitized.
There are around 4,800 commercial banks in the United States, per data from the Federal Reserve Bank of Saint Louis, perhaps causing many to have expectations of future consolidation throughout the industry. With large global banks such as Bank of America and JP Morgan Chase pressuring their smaller counterparts to increase their technological access, and with analysts predicting a slowdown of regional bank profit generation by 2020, per CNBC, the coming year could provide the right conditions for banking mergers around the country.
Furthermore, investors and the market at large have expected banks to consolidate as scars of the previous financial crisis start to fade and regulators begin to give banks more leeway. In 2018, US Congress eased restrictions initially put in place by the Dodd-Frank Act that shifted strict capital requirements from any bank with over $50 billion in assets to include only those with over $250 billion, a decision that caused an uproar from leftward-leaning economists. With both banks in the SunTrust-BB&T merger individually approaching that $250 billion limit, a consolidation will help them benefit from reduced costs, which the banks estimate will equal $1.6 billion by 2022.
Since last year's modifications to the Dodd-Frank Act, banking merger deal value in the US has seen an increase in activity, according to PitchBook data, with 2019 already sitting comfortably at $26 billion (excluding SunTrust and BB&T's deal). Meanwhile, the entire last year brought in nearly $36 billion and 2017 collected more than $42 billion. Overall, deal count and deal value in the US commercial banking industry have steadily picked back up since the end of the financial crisis, again per PitchBook data.
Related read: Is banking M&A about to boom?