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The Next Big Thing?

BB&T-SunTrust may start a new merger wave.

By Bill Poquette

This is huge. BB&T and SunTrust, the 16th and 17th largest U.S. banks, are merging. The combined bank jumps to No. 8 after the four multi-trillion behemoths, then Goldman Sachs, Morgan Stanley and U.S. Bank.

Valued at $28.2 billion and resulting in a $442 billion financial institution, except for rescue operations during the Great Recession, this is the biggest bank pairing in 15 years. With their overlapping footprints spanning the Southeast and Mid-Atlantic, the two companies are in 18 states, with both in eight states and one or the other in 10 more. They claim to serve more than 10 million U.S. households.

Analysts were generally enthused by the move.

“When it comes to technology and innovation, we see the benefits of scale as being likely to spur more regional bank consolidation in the U.S.,” said Allen Tischler of Moody’s.

Echoed John Stockamp of West Monroe Partners, “It’s exciting to see such a big bank merger announced this early in 2019. Hopefully it will open the floodgates for bank M&A activity in 2019, which has been relatively quiet recently.”

But to no one’s surprise, Sen. Elizabeth Warren, D-Mass., and Rep. Maxine Waters, D-Calif., chairman of the House financial Services Committee, were critical.

In a letter to Federal Reserve Chairman Jerome Powell, Warren wrote, “The board’s record of summarily approving mergers raises doubts about whether it will serve as a meaningful check on this consolidation that creates a new too-big-to-fail bank and has the potential to hurt consumers.”

Said Waters, “The proposed merger raises many questions and deserves serious scrutiny from banking regulators, Congress and the public to determine its impact and whether it would create a public benefit for consumers.”

Responding to Warren’s letter on its Opinion page, The Wall Street Journal argued that the combination should increase competition and improve customer service. But it’s hard to believe consumers will benefit from big mergers like this. Indeed, they reduce competition by limiting choices. With this merger, the “Big 8” will control over 60 percent of the U.S. banking system’s assets, with the rest divided among 5,400 not-too-big-to-fail banks.

Is the BB&T-SunTrust merger a harbinger of things to come, as the analysts predict? There are 31 more banks in the $100-$500 billion asset range, according to the Federal Financial Institutions Examination Council. One has to assume the kinds of synergies/savings being touted for this latest transaction could trigger more consolidation among these companies: $1.6 billion in annual net cost synergies by 2022, with the primary sources expected to be facilities, information technology, systems, shared services, retail banking and third-party vendors.

While worrisome, more of these industry-changing mergers may not mean despair for community bankers.

In a conversation recently with the CEO of a soon-to-open Florida de novo, he noted there are branches of both BB&T and SunTrust nearby. And he is salivating over the customers that will be displaced when the merger forces closure of one branch or the other. If there is a silver lining behind the threatening cloud of super-regional combinations, this could be it.

Bill Poquette, Editor-in-Chief, bpoquette@banknews.com

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