The US banking sector could see a new round of consolidation.
Is the long-awaited next phase of the US banking industry’s consolidation underway?
The merger of equals between BB&T Corp. and SunTrust Banks, announced in February, suggests something has changed in the US banking landscape. The biggest banking deal in a decade creates a Southeastern powerhouse with a $66 billion market capitalization and $442 billion in assets—the sixth-largest commercial bank in the country.
The longtime rivals had flirted in the past, but never got near to marriage. What changed? A realization that “as the banking model shifts from branches and real estate to technology, scale is crucial,” says Stephen Scouten, an analyst for Sandler O’Neill + Partners.
Regional banks no longer can rely on a local presence to retain corporate and retail clients, and are losing in the digital race. JPMorgan Chase’s 2018 budget for just technology and marketing, for example, was $16.5 billion—more than the combined total expenses of BB&T and SunTrust. The merged entity’s plan is to invest the estimated $1.6 billion in savings gained from the merger in digital initiatives, such as new technology and an innovation center.
“In order to survive in this really quickly changing world, it’s important to be willing to change,” said BB&T’s Kelly King, who will be the new financial institution’s chief executive officer. BB&T already had a program to shift resources from branches and people to technology, dubbed Disrupt to Thrive. “This is kind of the ultimate ‘Disrupt to Thrive’,” he said.
While retail-banking efficiencies drive the deal, commercial clients will notice a difference. Robinson Humphrey, SunTrust’s corporate and investment banking arm, has proven adept at cross-selling investment banking services to its commercial customers. BB&T has a sizable commercial book—business loans make up 46% of its balance sheet—and those clients can expect an aggressive new competitor for their fundraising and transactional services.
Mergers of equals often fail to deliver promised results, but given the dynamics, other large US regional banks might follow suit. Analysts cite KeyCorp, Huntington Bancshares, Fifth Third Bancorp and Regions Financial Corp, all $100 billion-something institutions, as potential candidates.
Action at the top of the food chain makes everybody hungrier.