A tie-up between BB&T Corp. and SunTrust Banks Inc. is not just the largest U.S. bank deal in years — it is the nation's eighth-largest bank deal of all time, not accounting for inflation.
The banks heralded the all-stock transaction as a $66 billion merger of equals, and executives forecast the combined entity would have a market value of about $76 billion after delivering on projected cost savings. S&P Global Market Intelligence methodology treats SunTrust as the target and assigns a value of more than $28 billion, putting it just ahead of Wachovia's $25.47 billion acquisition of Golden West Financial in 2006.
Among the seven deals ahead of BB&T-SunTrust, five occurred between 1998 and 2000. While those big deals have played a central role in creating some of the industry's most dominant players — such as the Wells Fargo & Co. merger of equals with Norwest Corp. or JPMorgan Chase & Co.'s tie-up with Bank One Corp. — the track record overall is somewhat mixed, said John Roddy, head of financial services for Raymond James.
"I don't think you can look at the data over a 20-year period and draw a conclusion that the mega-deals have created shareholder value in excess of the banking index," Roddy said in an interview.
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Bank stocks were hammered in December 2018, putting valuations near historic lows when measured as a multiple of future earnings estimates, according to research from Keefe Bruyette & Woods. Some investment bankers say the BB&T-SunTrust deal could spur banks to consider a merger of equals, especially given current valuations and the urgent need to invest in technology.
Roddy said the pairing will make other banks "scratch their heads and ask, 'Should I be doing this too?'"
That is a question large regional banks — those with $100 billion to $400 billion of assets — have to be asking, said Todd Baker, managing principal for Broadmoor Consulting. "If they want to compete with the big guns, they have to combine with each other and use the cost savings to invest in technology. They will lose their best current customers if they don't," Baker wrote in an email. Alternatively, he wrote, they need to adopt a niche strategy to remain profitable in the changing environment.
