BBT BB and T Corporation

By Rachel Louise Ensign and Allison Prang 

BB&T Corp. struck a deal to buy SunTrust Banks Inc., combining two regional lending powerhouses to create the sixth-largest U.S. retail bank and end a decadelong drought in big bank mergers.

The all-stock, $28.2 billion deal is the largest U.S. bank merger since the financial crisis ushered in a stricter regulatory regime that kept banks on the sidelines of recent deal-making booms. Bank rules have loosened considerably following President Trump's 2016 election, leading some to predict a wave of consolidations among smaller banks.

The deal comes as regional lenders are struggling to compete with big national banks such as JPMorgan Chase & Co. and Bank of America. The largest national U.S. banks, which can't buy other banks because of their size, are attracting a greater share of new checking accounts as consumers, particularly younger ones that live in big cities, are drawn to their digital offerings.

While regional banks got a big profit boost from the recent corporate tax cut, deposit growth at many of these firms banks has faltered, threatening a key source of funding. BB&T's deposits were up 2% in the fourth quarter from a year earlier, while SunTrust's were up 1%.

BB&T and SunTrust said the deal will allow them to develop better technology than they could on their own, making them more attractive to potential customers.

"The world is changing and we have to change," BB&T Chief Executive Kelly King said in an interview Thursday.

SunTrust shareholders will get 1.295 BB&T shares for each SunTrust share owned, a 7% premium to SunTrust shareholders based on Wednesday's closing price. SunTrust shares rose 8.3% midday Thursday, while BB&T shares were up 2.5%.

The companies said the deal values the merged entity at $66 billion. The deal is the largest U.S. bank merger since JPMorgan's 2004 purchase of Bank One Corp. Bank of America Corp.'s crisis-era purchase of Merrill Lynch & Co. was worth more when it was announced, but its value plummeted before the deal closed.

Regional banks have been the biggest beneficiaries of bipartisan legislation to ease banking rules and a lighter touch from regulators under the Trump administration. The Federal Reserve late last year announced a big rollback of bank rules, loosening capital and liquidity requirements for banks with assets in the $250 billion to $700 billion range.

The merged bank will have about $442 billion in assets, the firms said.

The timing of the announcement is a sign of the more favorable regulatory environment. BB&T is currently operating under an agreement with the Fed to improve its anti-money laundering controls, a situation that likely would have prevented such a deal from moving forward under the Obama administration. Mr. King said BB&T is in the "very final stages" of getting the order lifted, and he doesn't expect it to get in the way of the required regulatory approvals.

The merger is likely to lead branch closures. The banks, which have more than 3,100 branches all told and about 740 within two miles of each other, both have been shuttering locations as customers migrate to digital offerings. The banks expect the merger to close in the fourth quarter and project it will produce some $1.6 billion in annual cost cuts.

The new bank, which hasn't been named yet, will be based in Charlotte, N.C., home to Bank of America and a large Wells Fargo & Co. hub.

The merger brings together two banks with long histories in the South. Winston-Salem, N.C.-based BB&T has a quirky culture that encourages employees to keep gratitude journals.

SunTrust has deep ties to its home base of Atlanta. It's name graces the Atlanta Braves' new baseball stadium. From 1925 to 2011, one of its vaults held fellow Atlanta resident Coca-Cola Co.'s most prized possession: the secret Coke recipe.

Mr. King, 70, will be the first CEO of the new firm. SunTrust CEO William Rogers Jr., 61, will serve as president and operating chief of the combined company following the deal and will become CEO after Mr. King steps down in 2021.

Until recently, both banks had touted plans to grow on their own. But the two executives, who have known each other for years, concluded that a combination was the best way for both banks to adapt to the rapidly changing banking business.

It wasn't an easy decision, Mr. King said. "I woke up in the middle of the night thinking of Alpheus Branch turning in his grave," he said, referring to one of founders of BB&T, whose last name has always been reflected in the bank's name. "It's not about looking backwards, it's about looking forwards.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

February 07, 2019 13:41 ET (18:41 GMT)

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