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3 Reasons to Sell BB&T

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For those of us that tend to focus on the financial sector, there are certain banks and financial companies that you keep an eye on. A lot of the focus tends to gravitate toward megabanks like JPMorgan Chase (NYSE: JPM  ) and Bank of America (NYSE: BAC  ) , the two largest banks in the country. This focus is warranted, as moves that both make can have major impacts on the sector and financial markets as a whole.

Obviously, there are more banks than the ones that dominate our daily headlines. One such bank is still pretty large when compared with the average bank stock, but it is about 8% the size of JPMorgan Chase. That bank is BB&T (NYSE: BBT  ) . Earlier this month, I provided three reasons to buy the North Carolina-based bank. Today, I'll put on my bear hat and provide three reasons why you should consider selling the bank if you currently own shares.

1. Its size works against it
While BB&T is nowhere near the size of the traditional "Too big to fail" banks, its size can pose difficulties should the bank face difficulties growing through traditional means. BB&T's size limits its ability to seek smaller banks to acquire, primarily because it could be forced to deal with strict regulatory requirements if it decides to grow via acquisition.

Smaller banks, on the other hand, can turn to smart acquisitions and mergers to grow, and have done so on a couple of different occasions this year. Regional neighbor M&T Bank (NYSE: MTB  ) acquired Hudson City Bancorp (UNKNOWN: HCBK.DL  ) at a premium, expanding its reach from Connecticut to Virginia. FirstMerit (NASDAQ: FMER  ) announced its acquisition of Citizens Republic (UNKNOWN: CRBC.DL  ) in September, an agreement that will grow its footprint in US Bancorp's home region.

It's not as if BB&T is banned from acquiring other banks; as the largest bank in its region, it might actually make sense to seek out a smaller bank to expand its reach. One potential target that has been mentioned is BankUnited (NYSE: BKU  ) , a bank that I think would be an interesting option. Struggling-to-recover Synovus Financial (NYSE: SNV  ) could also be an interesting acquisition target. However, either of these acquisitions would likely have a negative impact on the quality of its balance sheet, or would potentially cost the bank more than it is worth. I wouldn't expect "growth through acquisition" to be in the bank's near-term plans.

2. Fiscal cliff drama
It's all over the news. We have an updated farm of articles to keep our readers abreast of what is happening with the negotiations between Congressional leadership and President Obama. How could these talks affect BB&T adversely?

The general consensus is that we don't really know what will happen to the market until an agreement is reached or we are forced to go off the "fiscal cliff." One item rumored to be on the chopping block is the home mortgage deduction that many Americans use every year when itemizing deductions. With mortgage lending a big focus of BB&T's community banking model, a reduction or elimination of this deduction could hamper BB&T's ability to grow its lending portfolio, thus impacting the performance of the bank going forward.

3. It's a bank
Finally, while I personally think there is a lot of value to be found in the banking sector, the market as a whole still seems to be skeptical of bank stocks like BB&T. It seems that every other day there is some news about some big bank losing in court or paying a settlement because of mortgage shenanigans or various other reasons.

Furthermore, there is no industry under more scrutiny than the banking sector because of the financial meltdown they helped cause in 2008. The largest banks are required to pass certain "stress tests" every year, testing the banks' ability to handle various economic scenarios, including a massive drop in home prices, high unemployment, and substantial banking losses. Hopefully, BB&T can follow up its stellar performance in the next round of tests early next year, but only time will tell.

Don't take my word for it
While I like to think that I have the power to move markets, I'm no Warren Buffett. It goes without saying that these three reasons should not be the only reasons that you sell -- or avoid -- BB&T as an investment. I do hope that they are a good starting point as you dig deeper into your research on the company.

This article presents a strong sell case for BB&T, but it could also be a great time to buy the regional bank. Luckily, our analysts have taken a deeper look at the bank to help you figure out whether BB&T is a buy today. I invite you to read our premium research report on the company today. Click here now for instant access!


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On December 21, 2012, at 3:28 PM, pl2358 wrote:


    I'm not buying your arguments or any of the reasons behind them, and the numbers and information out in the financial marketplace don't follow either your logic or your conclusions.

    BB&T successfully bought one of the largest banks that failed during the recession. Colonial Bank, the bank purchased, was very large in size compared to BB&T at the time of purchase. Within a year, the Colonial purchase has been positive to BB&T's earnings, both revenue and diluted earnings.

    BB&T just purchased BankAtlantic, even after the "strict regulations" that you mentioned played a part in the price of BankAtlantic going UP after the deal was agreed to. BB&T still went through with the purchase, and it looks like this purchase too will be a homerun. The size of BB&T won't likely prevent an acquisition, it will likely help it, because a bigger bank has a better time swallowing a bad balance sheet in the eyes of the FDIC and Fed.

    These two points provide a historical and very current example of how BB&T's size didn't work against it both when BB&T was small compared to the purchase and when it was large compared to the purchase.

    As to your second point, the fiscal cliff is not likely to cause a change in mortgage interest write-offs. There was talk about the possibility of lowering the cap for maximum mortgage size, but even if that number were to drop to a $500,000 maximum in order for a taxpayer to be able to write off mortgage interest, it will likely not affect BB&T any more than any other bank. BB&T doesn't make bad loans, and they aren't a large player in the jumbo ($750,000 and higher value) mortgage market, so lowering the maximum cap to $500,000 is not likely to have a significant effect on their mortgage business or their ability to generate more business.

    You're third point borders on sensationalism. BB&T has one of the highest net interest margins in the entire banking sector, which means they generate the highest amount of profit for every dollar that they work with. Their interest margin is and has been, even in the midst of the recession, at the highest levels in the industry. Banks that do that are the cash cows of the financial business. Couple that with their hometown mission statement that underlies what every branch tries to achieve, and BB&T is a preferred bank of customers. Pay no attention to the fact that BB&T carried one of the highest dividends through the financial crisis and has raised it significantly since the Fed allowed banks to do so. Also, pay no attention to the fact that BB&T performed nearly the best of ALL of the banks that were forced to measure themselves against the newest stress tests.

    While the banking industry is under public scrutiny, BB&T is very clear about what they are trying to achieve: superior shareholder returns, increasing it's customer base, and trying to become the preferred hometown bank in the areas in which it operates. Your article appears on it's surface and after review to be lacking in facts, lacking in basis for opinions, and not true to the underlying company that you speak about. Please do a little more research before you blast a company that is actually sound in both fundamentals, business model, and leadership that has already been through a similar crisis (look back to the 1970s and 1980s) and knows how to navigate through the one we are in now as well, if not better, than any other leadership team in the financial world.

    I am long BBT, obviously, and wouldn't be long any financial institution in this becoming-overly-regulated industry if they didn't conduct business like BB&T does.


  • Report this Comment On December 21, 2012, at 4:16 PM, XMFTheGuruEbby wrote:

    Thanks for the comment Patrick.

    In my defense, I am particularly bullish on the majority of banks. In fact, as alluded to in the article, I previously presented my bull case for BB&T. Some of the points you mention were precisely the reason why I liked BB&T over some other larger regional banks.

    I was merely providing an alternative case as to why an investor might consider selling or avoiding BB&T as an investment. I like to provide both sides of the argument when possible, and found it extremely difficult to find three reasons to sale BB&T. It truly is a well-ran bank, and I would purchase long before only a handful of financial companies out there.

    Thanks for reading!


  • Report this Comment On December 22, 2012, at 9:39 AM, antiquatedangler wrote:

    Less than a month ago, you were saying, "3 Reasons to Buy BB&T". Now, less than a month later, you are saying, "3 Reasons to Sell BB&T". What kind of junk advice is this? Not the kind that makes me really happy that I paid for it.

  • Report this Comment On December 25, 2012, at 11:06 PM, XMFTheGuruEbby wrote:

    As mentioned previously, I was simply presenting both sides of the bear/bull case for BB&T. Furthermore, both articles were published on the the non-pay side of The Motley Fool, so I don't understand your comment about having to pay for either article.


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