Thursday, February 07, 2019

Bank merger classic, BBT and STI

In this placid environment for most banks, meaning one of reasonable earnings and limited credit risk, the merger of Atlanta based SunTrust and Winston Salem based BB&T is a confederate combination, not of dunces but of bankers.  The rationale is the classic expense reduction through reducing overlaps in personnel, locations, and functions. If there are locations of each bank near each other, now one can be a Kentucky Fried Chicken, a win win for customers, original or crispy.

BBT is acquiring STI, and both are benefitting in today's market, BBT up almost 4% as the acquirer and STI up around 10% as the acquired.  Both being up underscores market approval.  Both banks already pay a dividend above 3%.  The largest discretionary institutional holders of STI are multiple funds of L.A. based Capital Group, JPM Mid-Cap Value Fund, and Vanguard/Windsor II.  For BBT, the comparable large holders are San Francisco based Dodge and Cox, First Eagle Mgmt., and Delaware Group Value, as if they did anything else.

They chose a new headquarters location, in Charlotte, HQ home of BofA and a large part of Wells Fargo.  A new headquarters location is a bit unusual, but Charlotte has the critical mass of bank type employees, to draw from and fire into.  That will certainly be no solace to Winston Salem, whose tobacco imperialism has long been diminished.  Home prices are already dropping there, just a guess.

Another classic aspect of this merger is that one bank's CEO, that of BBT, will stay for two years and then be replaced by the STI CEO.  One major difference though.  The acquirer's CEO leaves after two years?  It's usually the other way around.  That may be age related but experience suggests that once the deal is closed, nothing about this is guaranteed, it's not legally required.  Experience suggests that this is cosmetic to alleviate the challenges of integration.  SunTrust folks, don't bet the ranch on your guy being in charge one day.

Then there's the issue of a new name.  SunTrust seems as if it could be a possibility for a southern bank, but being the acquired one means that cannot work.  Branch Bank and Trust lacks something of a cachet, everything in fact.  So what works?  SunBranch, of course not.  Bojangles, already taken.  Atlas Banking Corporation, there's one for Cato Institute fans who populate BBT.  Who knows?  Is that the most interesting thing about this merger?

Of course not, for shareholders of these two firms today's share price gains are extremely interesting.  Not one here.


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