While BB&T’s $28 billion purchase of SunTrust will create the sixth-largest bank in the U.S., federal regulators are unlikely to view the combined company as too big to fail, a potential obstacle to mergers in the decade since the financial crisis.
The new firm, which will operate under a yet-to-be-determined name, will have $442 billion in assets, shy of the $500 billion threshold that’s considered a systemic risk and triggers the strictest level of scrutiny from the Federal Reserve and other government agencies, said Jaret Seiberg, an analyst with Cowen Washington Research Group.
“This deal will trigger some political criticism on Capitol Hill,” Seiberg said, “yet we don’t see the transaction getting the same treatment as hearings involving Wells Fargo or other megabanks.”
Mergers among large lenders have been constrained since the failure of investment bank Lehman Brothers in 2008 froze credit markets and forced the U.S. government to pour billions into bailouts of large finance companies in order to shore up the U.S. economy.
Bank of America and Citigroup each received $45 billion, for example, while insurer AIG garnered more than $182 billion as voters losing jobs and retirement savings complained that Wall Street firms received preferential treatment. Critics including Elizabeth Warren, now a U.S. senator, argued that the repeal of a Depression-era law separating investment and commercial banks had allowed some lenders to grow so large that that their failure threatened the financial system.
The Dodd-Frank reform law, passed in the aftermath, categorized any bank with $50 billion or more in assets as systemically important, but an update passed under a GOP-controlled Congress in 2018 raised the threshold.
BB&T’s deal is a direct consequence of that revision and the “deregulatory agenda that Trump and Congressional Republicans have advanced,” said U.S. Rep. Maxine Waters, D-Cali., who became chairman of the House Financial Services Committee after Democrats regained a majority in the chamber during mid-term elections.
“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,” she added.
BB&T CEO Kelly S. King, however, promised that the new company would keep “a rigorous risk management culture” and expressed confidence that regulators would sign off on the transaction. If it’s completed, SunTrust stockholders will receive 1.295 shares of BB&T for each of their existing shares, or $62.85 per share, according to the Swiss lender UBS.
Afterward, the bank plans to set up a new headquarters as well as a technology center in Charlotte, N.C., the home of Bank of America, and invest significantly in digital operations.
Services such as mobile-banking apps that allow cash transfers and check deposits via smartphones are increasingly popular with consumers because of their convenience, and they cost a fraction of the amount required for in-branch transactions or even ATM usage.
“This paves the way for technological differentiation,” King said. “Individually, we are strong. Combined, we will be the best.”
SunTrust shares rose 10 percent to $64.72 in New York trading on Thursday, while BB&T gained 4 percent to $50.46.
“In an industry where we have said economies of scale and technology are increasing important, this transaction certainly aims to tackle these issues,” said Jason Goldberg, an analyst with British lender Barclays Plc. “While both BB&T and SunTrust have undertaken large transactions over their lifetimes, nothing has been of this size and magnitude.”
