In the largest banking merger since the end of the financial crisis, southeastern-based regional banks BB&T (NYSE:BBT) and SunTrust Banks (NYSE:STI) have announced their intention to combine forces later this year.
The deal will create one of the largest commercial banks in the United States when it's finalized, so here's what investors need to know about this so-called "merger of equals."
BB&T is the acquirer
Although both regional banks are referring to the deal as a merger, BB&T is officially the acquirer here. BB&T is buying SunTrust for approximately $28 billion in the deal, which values the combined companies at about $66 billion.
While mergers and acquisitions activity has been taking place at an elevated level in recent years, this is the biggest bank M&A transaction since the financial crisis. Tougher regulations during the Obama administration largely discouraged bank mergers, but the looser-regulation environment of the Trump administration has been widely expected to cause a surge in bank deals -- and it's now starting to actually happen.
This is an all-stock transaction
Although BB&T is technically acquiring SunTrust, there's no cash being exchanged here. The merger is an all-stock transaction, with SunTrust shareholders set to receive 1.295 shares of BB&T for every SunTrust share they own.
BB&T shares were trading for $50.70 per share as of 9 a.m. EST on the morning of the announcement, which values SunTrust shares at $65.66, a premium of nearly 12% over the previous day's closing price.
With that said, it's worth noting that the actual value of the deal remains to be seen, since it depends on BB&T's share price at the time the merger is finalized. So although BB&T is buying SunTrust for roughly $28 billion in stock, that valuation is likely to be significantly different by the time the deal is closed.
The deal will create the sixth-largest bank in the U.S.
When the merger is completed, the combined bank will have $442 billion in assets, which will make it the sixth-largest U.S. commercial bank. Excluding banks that are primarily investment banking institutions, BB&T and SunTrust are currently ranked 11th and 12th, respectively.
If you're curious, the top five are JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup, which are collectively known as the "big four," and U.S. Bancorp, which will be just slightly larger than the combined BB&T and SunTrust operation. For context, the smallest of the big four has close to $2 trillion in assets, so it's fair to say that the top four will stay the same for the foreseeable future.
It is expected to be completed by the end of the year
Bank mergers can be quite a process, especially when they involve institutions of this size. However, BB&T and SunTrust expect their combination to be finalized by the end of 2019 and the deal to close during the fourth quarter. Experts generally don't foresee any regulatory issues with the deal, but is it subject to customary regulatory approvals.
Which brand name will the new bank use? BB&T or SunTrust?
This is a trick question. It may come as a surprise, but the combined bank will operate under a new yet-to-be-announced name. The combined bank will be headquartered in Charlotte, North Carolina, which is currently home to neither of the banks. BB&T is based in Winston-Salem, North Carolina, and SunTrust is based in Atlanta. Charlotte is a major banking city, home to Bank of America and a large portion of Wells Fargo's operations.