BBT BB and T Corporation

By Rachel Louise Ensign and Allison Prang 

BB&T Corp. struck a deal to buy SunTrust Banks Inc. for $28.2 billion, 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 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 flood of consolidations among smaller banks.

The merger of BB&T and SunTrust could be the deal that opens the spigot. Regional lenders are struggling to compete with big national banks such as JPMorgan Chase & Co. and Bank of America Corp., which are attracting a greater share of new checking accounts from customers that are drawn to their digital offerings.

Deposit growth at many small and midsize 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%.

Technology was the main impetus for the deal, executives for BB&T and SunTrust said Thursday. Pooling their resources will allow the companies to develop better digital offerings together than they could on their own, they said, making the combined bank more attractive to potential customers.

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

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. The combined 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. Its 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.

The deal is likely to lead to branch closures throughout the Southeast. BB&T and SunTrust, which have more than 3,100 branches all told and about 740 within 2 miles of each other, both have been shuttering locations as customers migrate to digital offerings.

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 10% Thursday, while BB&T shares were up about 4%.

It 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.

Bank deals of the scope seen before and during the financial crisis have disappeared and are unlikely to return soon. The largest national banks are effectively barred from merging because of their size, leaving potential deal-making to small and regional lenders.

Smaller 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 for regional banks, loosening capital and liquidity requirements for lenders with assets in the $250 billion to $700 billion range.

Some 129 U.S. banks had assets in the $10 billion to $250 billion range in the third quarter of 2018, according to the Federal Deposit Insurance Corp. Just nine had assets above $250 billion.

BB&T had $225.7 billion in assets at the end of 2018, while SunTrust had $215.5 billion. The banks expect the merger to close in the fourth quarter and project it will produce some $1.6 billion in annual cost cuts by 2022.

"I think the green light for this deal was the relaxation of the regulatory rules," said Piper Jaffray & Co. senior research analyst Kevin Barker. But "time will tell" whether the deal works, he said, adding that the firms have to address cultural issues and make sure valuable employees don't leave.

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.

Until recently, Messrs. Rogers and King had touted plans to grow the banks 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 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 16:38 ET (21:38 GMT)

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