The top executives of BB&T Corp. and SunTrust Banks Inc. are expected to face an intense, if not occasionally combative, setting during a hearing today of the U.S. House Committee on Financial Services.
The committee titled the meeting, which began at 10 a.m., “The next megabank?”
It represents a key federal regulatory step in BB&T’s proposed $29.7 billion acquisition of SunTrust.
The banks announced the megadeal, valued at $66 billion, on Feb. 7. It is the largest proposed bank-industry deal since the Great Recession of 2007-11. BB&T shareholders would own 57% of the combined entity.
The Federal Reserve Board and Federal Deposit Insurance Corp. must approve the deal. The combined bank would have $442 billion in total assets.
BB&T received approval July 10 from the N.C. Commissioner of Banks.
The banks project the deal to close in late September to early October. Special shareholder meetings are scheduled for 11 a.m. Tuesday in Greensboro and Atlanta. However, depending on the level of congressional and federal regulatory scrutiny, approval could take into early 2020, analysts say.
Kelly King, BB&T’s chairman and chief executive, told analysts Thursday that while he “expects that the hearing will go well,” he acknowledged it is an unusual event for the House committee to focus on a single deal. King will serve in the same leadership roles for the combined bank.
“It’s the fourth largest bank merger in history, so it’s a big deal,” King said.
“They are concerned we’re creating another megabank, a too-big-to-fail bank. We will be saying we’re not a megabank, but a very large regional bank. We would have about 3% (of the national asset totals).
“We will not be increasing systemic risk, but in fact reducing it,” King said. “We believe we will be able to satisfy their questions, and we view it as four to five hours of free advertising.”
The public memorandum on the meeting includes an overview of the megadeal and concerns that the committee, led by chairwoman U.S. Rep. Maxine Waters, D-Calif., is likely to address.
Waters was among the first members of Congress to speak out on the megadeal, saying Feb. 8 that it “is a direct consequence of the deregulatory agenda that (President) Trump and congressional Republicans have advanced.”
“The proposed merger raises many questions and deserves serious scrutiny from banking regulators, Congress and the public to determine its impact and whether it would create a public benefit for consumers.”
A primary concern is the banks’ plans to consolidate and close hundreds of branches. The banks have said they have at least 740 branches within two miles of each other.
“Despite convening the two public hearings (in Charlotte and Atlanta), a number of concerns persist including the merger’s impact on rural and underserved markets,” according to the memo.
The memo notes the banks’ July 16 pledge to lend or invest $60 billion between 2020 and 2022 to low- and moderate-income (LMI) borrowers and communities in a combined 17-state territory.
The plan would be conducted under the Truist Financial Corp. and Truist Bank name, brands that the banks unveiled to mixed reviews June 12.
Likely job cuts
The committee is expected to discuss likely job cuts considering operational overlap from BB&T (35,300 employees) and SunTrust (22,600 employees).
When the merger was announced, King told analysts, “if you are a client-facing associate and doing a good job, then your job is assured.” King repeated that pledge Thursday.
“It is unclear how both banks intend to provide severance or relocation assistance for employees affected by the proposed merger,” according to the memo.
The reality is the Triad will lose several hundred BB&T corporate-headquarters jobs to Charlotte, along with the entire executive-management team moving there as a result of the merger.
Winston-Salem would have the new combined bank’s community-banking division, probably keeping thousands of affiliated jobs and likely moving similar SunTrust jobs here as BB&T wholesale-banking jobs go to Atlanta.
The committee will address the banks’ Community Reinvestment Act (CRA) compliance.
Although there have advocacy questions in the past about BB&T’s CRA-related investments as it sought permission for bank deals, in June 2018 it received the top rating of “outstanding” from the FDIC.
The last CRA report from SunTrust had it with an overall “satisfactory” score.
Magnitude of deal
Among bank mergers with more than $10 billion in total assets, the proposed merger “remains a significant outlier,” according to the memo.
It cited that SunTrust, with $216 billion in total assets, is more than twice as large as the largest acquired bank since 2007.
Both Waters and Sen. Elizabeth Warren, D-Mass., and a Democratic 2020 presidential candidate, have questioned whether federal regulators are rubber stamping major bank deals.
The memo said that from 2006 to 2017, there were 3,189 bank deals submitted to the Fed. There were 3,316 applications approved, 503 withdrawn and none formally rejected, although analysts say the bulk of the withdrawn applications likely came from the recommendation of regulators.
Sen. Sherrod Brown, D-Ohio, wrote to the banks’ chief executives in April, saying, “the merger also deserves scrutiny because it would be of a magnitude that we have not seen since the financial crisis.”
“It is critical that we understand this merger’s impact on employees, consumers and the communities you serve.”