BBT BB and T Corporation

By Kristin Broughton 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 13, 2019).

Behind one of the biggest bank deals in a decade is a recognition that BB&T Corp. and SunTrust Banks Inc., both dominant banks in the South, would be more competitive with a bigger tech budget.

The all-stock, $28.2 billion deal, announced Thursday, is expected to help the rivals close a widening digital gap that is fueling one of the biggest threats to their business: losing relevance among younger customers.

The deal, which would create the sixth-largest regional bank and a financial powerhouse in the South, underscores the urgency facing regional banks to invest heavily in client-facing and back-end technology to continue attracting consumer and corporate customers.

"What's the largest strategic risk facing the banking industry? It's technology," said Todd Baker, a senior fellow at the Richard Paul Richman Center for Business, Law and Public Policy at Columbia University. "How are they going to be more nimble and effective?"

The transaction -- the biggest bank deal since the financial crisis -- will allow the former rivals to develop better technology together than they could on their own. They plan to reinvest $1.6 billion in projected cost savings from the merger into technology and innovation.

The companies also plan to create an innovation and technology center at the merged entity's new headquarters in Charlotte, N.C., to drive digital transformation, including the adoption of automation and an improved customer experience online.

"This is the early innings of an enormous transformation of all of financial services," Mr. Baker said.

In recent years, big banks such as JPMorgan Chase & Co. and Bank of America Corp. have invested heavily in developing consumer-facing technology such as artificial intelligence-powered chatbots and digital investing apps. In the process, they also have added deposits at a faster clip than smaller peers.

To understand the challenges regional banks face, consider: BB&T disclosed in November that its technology budget for 2018 was $1.1 billion. BofA, meanwhile, disclosed a total technology budget of about $10 billion.

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

The deal also presents an opportunity for cost savings. During a conference call with analysts, executives from both companies said that some of the cuts could come from redundant systems and branch closures. Together, the companies have roughly 740 locations within two miles of each other, according to a presentation.

Those savings could bolster the tech budget. "One of the most powerful benefits of this merger," BB&T Chief Financial Officer Daryl Bible said during the call, "is that we are able to take significant costs out of redundant areas and reinvest them into innovation, technology and our talent, ensuring we are better positioned for the future."

Scott Case, currently the chief information officer at SunTrust, is expected to lead technology at the combined company, while Donta Wilson, chief digital officer at BB&T, would lead the company's digital transformation.

-- Rachel Louise Ensign and Allison Prang contributed to this article.

Write to Kristin Broughton at Kristin.Broughton@wsj.com

(END) Dow Jones Newswires

February 13, 2019 02:47 ET (07:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.