On February 7, BB&T and SunTrust banks announced their intent to merge. It is poised to be the biggest bank merger in a decade and create the sixth-largest bank in the United States. As directors in West Monroe’s financial services practice, we do our fair share of merger integration work in the industry—especially at super-regional, mid-market banks like these. We are keenly interested in how the merger will unfold over the next few months, especially as news reports like these arise, but within the first 48 hours have seven initial reactions to share.
This large of a merger announced this early in the year could be a sign that banking M&A will heat up, as activity has been relatively quiet recently. Coming off the heels of January’s “Acquire or Be Acquired” national conference on banking M&A, a material merger was predicted – something further upmarket than we’ve seen in the last decade – and this fits the bill.
They have similar geographic footprints, but their businesses complement each other well with BB&T much more prominent on the retail side and SunTrust focused more on wholesale banking. It will be interesting to see them execute their strategy of creating a net new “neutral” headquarters in Charlotte given they are now based in Winston-Salem and Atlanta, respectively. This is likely going to have a number of logistical challenges as the banks are picking something “new” instead of choosing one current operation or the other. If this is a theme throughout the integration, there may be challenges with decision-making, execution, logistics, and ultimately, the speed to realizing synergies.
That strategy being to go upmarket and compete with the big U.S. banks for high-end corporate and investment banking clients in the Southeast and mid-Atlantic. This puts them in a position to better compete with the top five banks in those markets.
We are not sure if this merger springboards the two banks to become a competitor beyond the Southeast/mid-Atlantic with Bank of America, JP Morgan Chase, Wells Fargo, and Citi. They’ll become the super-regional player in the Southeast/mid-Atlantic that will be a true alternative to the big banks. They’ll be big enough to offer competitive products but potentially provide a better, more local, and more personal client experience. Given the big geographic overlap, I expect there to be a significant amount of cost savings – reduction of redundant branches and other operations. In downtown Atlanta, for example, and in many cities and towns throughout the region, the BB&T branch is literally across the street from the SunTrust branch.
As this moves forward will they operate as equals? Or will BB&T take the lead as the larger bank? Given both banks are of similar size, one key challenge is going to be quickly choosing one bank’s platform over the other in each business unit instead of operating in the gray area for too long. This tends to slow down mergers, decelerate synergies, value, and momentum.
Employees will need to know their fate sooner rather than later, as these are stressful activities and it’s relatively easy for talent to disappear to a wide range of competitors that have “help wanted” signs.
Many transactions end up getting negative press but there are a small handful in the last 20 years that didn’t end up in the headlines for making major blunders along the way. When bringing two organizations of this size together, it is important to not just consider what they will be on Legal Day 1, but integrate for scale and growth beyond that in terms of people, process, and technology. It will be interesting to see how the larger banking industry reacts to the news, as well as how the Southeast region will respond to the consolidation in its market. For now, the two banks have an opportunity to show the industry, the region, and the nation how a merger can work well when done right.
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