BB&T Corp. agreed to buy SunTrust Banks Inc. in the world’s largest bank merger in more than a decade, betting that a combination will enable them to keep up with bigger rivals in the arms race for new technology.
The $28-billion deal announced Thursday would scrap both companies’ names and headquarters, creating an entirely new bank based in Charlotte, N.C., with branches throughout the Southeast. It would be the sixth-biggest commercial bank in the United States by assets, supplanting PNC Financial Services Group Inc.
Industry executives have long predicted a wave of bank mergers that until Thursday had played out only in smaller or midsize deals. Brian Moynihan, chief executive of Bank of America Corp., said last month that he could envision the creation of another megabank, given the large number of small players spread through the country. And Ernst & Young said it expects a flurry of transactions this year, fueled by easing regulations and the U.S. tax overhaul, which helped lenders build a war chest to spend on acquiring new clients and technology.
The banks said the deal would enable more investment in technology while cutting more than 10% of combined total expenses through eliminating duplicate branches and digital systems. The company would create an “innovation and technology center” in its new headquarters, and the banks’ joint statement announcing the deal used the words “technology,” “digital” and “innovation” more than a dozen times.
The combination “provides the scale needed to compete and win in the rapidly evolving world of financial services,” BB&T CEO Kelly King, who is to keep that title at the new company, said in the statement.
Winston-Salem, N.C.-based BB&T, which has had several names since it was founded in the aftermath of the Civil War, and SunTrust, chartered in Georgia in 1891, have been direct competitors in many cities. They said that when they combine, they’ll have top-three market share in eight states. The transaction would deliver at least $1.6 billion in annual cost savings by 2022, the companies said.
BB&T shareholders are to own 57% of the combined company. SunTrust investors will receive 1.295 shares of BB&T for each SunTrust share they own, the companies said in the statement. That equates to BB&T agreeing to pay $28.1 billion for SunTrust’s equity as of Wednesday’s closing price, according to data compiled by Bloomberg.
The combined bank, whose new name will be announced at a later date, will have almost 60,000 employees and about $440 billion in assets. It will also have a 22% return on tangible equity, the firms said — higher profitability than any of the biggest U.S. lenders.
“Scale is the game here,” Ken Usdin, a bank analyst at Jefferies Financial Group Inc., wrote in a note to clients. “The BB&T/SunTrust merger will open more eyes on the potential for more sizable bank [mergers and acquisitions] to occur.”
The value of mergers and acquisitions in the U.S. financial services sector more than doubled to $196.5 billion in 2018 from $82.3 billion in 2017, according to Ernst & Young. The top-tier U.S. lenders will probably sit out this wave of consolidation, blocked from getting bigger by political and regulatory hurdles.
King is to serve as CEO of the combined company through Sept. 12, 2021, when SunTrust CEO William H. Rogers will take over. King is to serve a further six months as executive chairman.
SunTrust shares jumped 10.2% to $64.72 on Thursday. BB&T rose 4% to $50.46.
Royal Bank of Canada advised BB&T, while Goldman Sachs Group Inc. worked with SunTrust.