In a video for investors, the chief executives of BB&T and SunTrust bump fists to celebrate a merger with a combined equity value of $66bn. Awkward. Kelly King and William Rogers are southern, middle-aged and conservatively dressed. The ritual smacks of old guys getting down with the kids.
Their exuberance is understandable and will be felt across US banking. The bank deal is by far the biggest in a decade. Mash-ups of big financial institutions have been verboten since the financial crisis. In the Trump era, however, bank tie-ups — and the regulatory approvals required to execute them — have slowly accelerated.
If the Fed smoothly lets the combination through expect many more bro-tastic displays of affection. The economic case for consolidation has always been solid.
In the handful of recent regional bank mergers, the acquirer’s stock traded sharply down. No such issue here. The get-together of lenders headquartered in North Carolina and Georgia is billed as a merger of equals. It is an all-share combination executed at roughly market prices. The stock of both groups rose on Thursday.
The CEOs of the southern cousins said they will make the assets of the enlarged bank sweat, cutting combined operating expenses by more than tenth. An efficiency ratio of 51 per cent would rank as the lowest among US consumer banks.
The book value would jump accordingly, which explains the stock price reaction. As automation takes hold, scale efficiencies should be more easily captured.
At the same time, the question of systemic risk becomes more acute. The BB&T/SunTrust combination will have an asset base of $442bn, nowhere close to a JPMorgan or Citigroup. Still, that total is well over the $250bn threshold that gets the tightest scrutiny from prudential regulators.
The partners will argue that they are nothing like slick Wall Street banks that engage in risky, complex securities trading.
Two significant regional bank mergers announced in 2018, Synovus/FCB and Cadence/State Bank, have already been cleared and closed. This transaction is far bigger. Yet SunTrust and BB&T say it will get done by end of year. Then it would be time for man hugs — and a slew of copycat deals.
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