The $574 billion asset super-regional bank Truist Financial (TFC 0.53%) is a fairly new brand. The bank is the result of the large $28 billion merger of equals between BB&T and SunTrust in 2019, which, at the time, was the largest bank deal in more than a decade.
The deal formally closed at the end of 2019. Large bank mergers have historically been difficult to pull off, so it's always a good idea to review how things are going and the value that has been created since the merger was consummated, especially after two or three years. If you had invested $5,000 in Truist at the very beginning of 2020, here's how much you would have now.
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Working through a large merger during a difficult period
The formation of Truist created a very enviable franchise in a lot of ways because the combined entity now heavily operates in seven of the top 10 fastest-growing markets in the U.S. including North Carolina, Florida, Georgia, and Texas. With banking so heavily linked to the economy, the markets a bank operates in can have a big impact. Furthermore, Truist has a very large insurance business that generates a strong stream of fee revenue that most banks don't have.
But pulling off such a massive merger is quite difficult and complex. Management teams have to worry about things like systems conversion, eliminating redundancies, and merging the cultures of the two banks. Truist also chose to do quite a bit of technology updates and investments in the business while they were integrating the two banks.
From 2020 to 2022, Truist spent close to $4 billion on one-time merger-related expenses, which includes about $1.8 billion in investments to enhance the business, which will ideally pay off down the line. The merger also resulted in $1.6 billion of annual cost savings, which are always a key benefit of bank mergers.
Still, all of these one-time expenses have made the bank difficult for the market to analyze in recent years. Now, with the merger expenses complete, Truist has been aiming to generate industry-leading returns and efficiency, as well as strong operating leverage, which is when a bank grows revenue at a faster rate than expenses.
However, Truist, like most banks, has been operating in a very difficult environment since 2020 began. There was of course the pandemic, which threatened to essentially shut down the economy for months at a time. Most recently, a banking crisis hit in March, leading to the collapse of several large regional banks and presenting banks with a very challenging environment that has led to a pretty broad sell-off across the sector.
If you had invested $5,000 in 2020...
Truist stock opened 2020 at roughly $56.40 per share. The highest it got during the height of the bull market in 2021 was roughly $67.40 per share. But this year, in light of the banking crisis, the stock has sold off intensely and is currently trading below $33.50 per share.
So, if you had invested $5,000 in the stock at the very start of 2020 it would currently be worth $2,973 including dividend reinvestment. Had you invested that same amount in the broader benchmark S&P 500 index, your $5,000 would be worth $6,604 including dividend reinvestment.
But this is not unique among bank stocks, which are currently underperforming the broader market. I do think Truist can navigate the near-term pressure and rebound on a longer-term basis.
