The top executives of BB&T Corp. and SunTrust Banks Inc. went to Washington last week prepared to be peppered with a wide range of congressional questions about the proposed megadeal.
BB&T’s $29.7 billion purchase of SunTrust would be the largest proposed bank-industry deal since the Great Recession of 2007-11. BB&T shareholders would own 57% of the combined entity.
BB&T chairman and chief executive Kelly King, and his SunTrust counterpart, William Rogers Sr., likely were aware they might serve as punching-bag proxies for critics of the too-big-too-fail national banks among members of the U.S. House Financial Services committee.
However, at times during the nearly three-hour hearing, their bid to form Truist Financial Corp as the nation’s sixth-largest traditional bank was transported onto the battlefield of several culture-war issues.
For example, Rep. Sean Duffy, R-Wis., used the too-big-too-fail debate as a segue into discussing the banks’ policies on providing loans to private prison developers.
Meanwhile, Rep. Carolyn Maloney, D-N.Y., focused her questioning on comparing the banks’ stance on providing loans to the gun industry.
Maloney was the lone committee member to recommend that federal regulators “hit pause” on their review until the social and economic ripple effects of the megadeal are thoroughly examined, including hearing from community activists.
Bloomberg News has reported that protesters are urging bank executives to back away from lending to private prison operators since detention centers have become a flash point amid reports of substandard conditions at facilities for migrant children.
SunTrust said July 8 it would halt providing such loans. Other banks that have halted such loans include Bank of America Corp., BNP Paribas, Fifth Third Bancorp, JPMorgan Chase & Co. and Wells Fargo & Co.
“BB&T does not provide financing for the private prison industry,” spokesman David White said July 8.
Duffy asked the executives if it would be fair for their banks, “who follow the law with their regulators and get approval for this merger” to be subject to criticism from those “who think this is a horrible merger.”
“Bigger banks, they’re bad. Smaller banks are better. The Congress needs to intervene and say this shouldn’t take place even though you followed the law,” Duffy said.
When Rogers answered, “I don’t think that would be fair,” Duffy pounced to ask about SunTrust’s decision to not provide loans to private prison developers.
“If we have private detention centers that are caring for children, or detaining individuals who we might not know who they are — following American law — you say I’m not going to bank them. Is that fair?”
When Rogers began to explain that SunTrust “considers a variety of factors ...” Duffy cut him off to ask, “Is it fair?”
Duffy, raising his arms to emphasize his point, asked Rogers if he thinks “detention centers are concentration camps ... are ICE (officers) Nazis?”
Although Rogers said that neither he nor the bank have “ever used those descriptions,” Duffy questioned whether SunTrust supports “open borders” on U.S. immigration policies by refusing to make loans to the private prison operators.
As Rogers replied by saying SunTrust “is not taking a social position ...” Duffy cut him off again to say “that you are (taking a social position) when you say you won’t bank detention facilities ... because you were protested.”
“You don’t seem to think the U.S. government is a good risk (to pay for services)? Come on,” Duffy said.
“I give kudos to BB&T that if you abide by the law and are a good risk, we’ll bank you. That’s the right model.”
As Duffy concluded his questioning, he said he supported the merger, that “you will be great together,” and I don’t believe “the committee should sandbag the merger.”
Bloomberg News reported in March 2018 that Wells Fargo held the top market share, at $431.1 million, for lending to U.S. firearms manufacturers since the mass shooting at Sandy Hook Elementary School in Newtown, Conn., in December 2012 that killed 26 children and adults.
Bank of America Merrill Lynch was tied for fourth at $273.6 million, BB&T was tied for ninth at $157.5 million and PNC Financial Services Group was tied for 11th at $148.6 million.
In May 2018, Bank of America, Wells Fargo and BB&T agreed to provide 54% of the debtor-in-possession financing to Remington Outdoor Co. to aid its exit from Chapter 11 bankruptcy protection. According to bankruptcy court records, Bank of America and Wells Fargo are among three banks each providing $43.23 million, while BB&T is among three banks each providing $18.62 million.
Maloney began her question on the issue by saying gun violence “is an issue that Americans care deeply about.”
Maloney favored SunTrust’s lending policy, which she described as “having a very careful screening process .... where transactions with gun manufacturers are almost always denied.”
“BB&T, on the other hand, has no specific gun policy and has actually done a substantial amount of business with the gun industry.”
Maloney asked King about BB&T’s lending role in what she termed “a horrible epidemic of gun violence in this country,” specifically whether Truist would adopt SunTrust’s policy with the gun industry.
King began to respond by saying “we abhor all forms of violence ...,” but his comments were cut off because Maloney’s five-minute period for questions had ended.
Rep. Nydia Velazquez, D-N.Y., began her line of questions by asking King to answer Maloney’s inquiry on gun lending.
King said BB&T’s lending policy “is to try to help our clients achieve economic success and financial security according to the laws of the land.”
Velazquez responded by saying “that’s a No” on whether Truist would adopt SunTrust’s lending policy with the gun industry.
”A socialist or a capitalist?”
King and Rogers were asked pointedly by U.S. Rep. Roger Williams, R-Texas, whether they are “a socialist or a capitalist?” They answered “capitalist.”
Williams said his question was asked in the context of addressing claims by Democratic committee members of lax regulatory review of most bank deals.
“Contrary to what some of my colleagues seem to be implying, your two banks are currently being carefully examined by multiple federal agencies,” Williams said.
“If my colleagues have complaints about the process of two banks merging, I would encourage them to change the underlying laws rather than publicly criticize your two banks that have been doing everything by the book.”
Williams said his support for the megadeal stemmed in large part from BB&T and SunTrust having avoided international banking exposure and risky domestic customer and lending missteps that have dogged the Big 4 banks — JPMorgan Chase & Co., Bank of America, Citigroup and Wells Fargo — over the past decade.
“We’re only looking to compete (with the Big 4) in the markets in which we compete now,” Rogers said.
“We’re not looking to follow them internationally. We’re not looking to follow them into esoteric products.
“Where we compete on Main Street, we want to be extraordinarily competitive with them.”
Rep. Rashida Tlaib, D-Mich., questioned the executives about their mortgage lending practices in low- to moderate-income areas of their markets, expressing concerns about what she termed “mega-discrimination” in her district. Neither BB&T nor SunTrust have branches in Michigan.
Tlaib is one of the four “Squad” members of Congress that have been targeted for criticism for their progressive socioeconomic agendas by both President Trump and House speaker Nancy Pelosi, D-Calif.
Tlaib said mortgage-lending discrimination is occurring with banks large and small.
“We lost more black homeownership in Michigan than any other state,” Tlaib said. “We have various systems in place that lack accountability.”
Tlaib brought up federal regulatory actions and settlements involving the banks’ mortgage lending practices, such as SunTrust charging during the 2000s higher interest rates and fees to blacks and Hispanic applicants and borrowers than whites.
“It was a chapter that we’re not proud of in our company and one that we do not intend to repeat,” Rogers said.
King and Rogers said that no consumer should be subject to discrimination, and both banks have developed policies to prevent discrimination with customers and employees. That includes ending goals that could tie into the compensation standards for employees involved in lending.
BB&T agreed in September 2016 to pay an $83 million penalty to resolve U.S. Justice Department complaints it violated the False Claims Act in its handling of Federal Housing Administration mortgage loans from Jan. 1, 2006 through Sept. 30, 2014.
U.S. Bancorp agreed in June 2015 to pay a $200 million civil penalty to the department to address similar allegations.
BB&T was accused of “knowingly originating and underwriting mortgage loans insured” by the FHA “that did not meet applicable requirements,” the U.S. Justice Department said.
“As a result of BB&T’s conduct and omissions, HUD-insured loans endorsed by BB&T were not eligible for FHA mortgage insurance under the Direct Endorsement lender program, and that HUD would not otherwise have insured,” according to the Justice statement.
“HUD subsequently incurred substantial losses when it paid insurance claims on those loans.”
BB&T said in a statement that it agreed upon the penalty “without any admission of liability to avoid the cost and uncertainty of potential litigation.”
Tlaib accused BB&T of “lying” about how it participated in those FHA loans.
When King tried to address her question by saying BB&T, like other banks, had “challenges” in those FHA loan options, Tlaib again accused BB&T of lying as her time for questioning ended.
Rep. Alexandra Ocasio-Cortez, D-N.Y., and another member of the “Squad,” followed up on Tlaib’s questioning by saying BB&T paid the $83 million to settle on what she described as “junk mortgages.”
Ocasio-Cortez brought up SunTrust paying $968 million in fines to settle a lawsuit filed by 49 state attorneys general addressing claims of mortgage servicing misconduct, including illegal foreclosure practices.
Ocasio-Cortez said her point is that “consumers depend on watchdogs” to review banks’ lending patterns.
Currently, the Federal Deposit Insurance Corp. — which would regulate the combined bank — has a predominant Republican makeup because Trump has not appointed two Democratic representatives to its board.
“The current Republican nature of the FDIC, which is supposed to be an impartial watchdog, I think raises questions ... about the potential politicization of a merger,” she said.
Ocasio-Cortez also cited that SunTrust’s head lobbyist was formerly employed by the Republican Senate Banking committee.
“The primary regulator to provide oversight of the (banking) industry — to ask the toughest questions and scrutinize the merger — has long-standing ties through former employment to one of the banks requesting this merger.
“It raises questions about the process.”
Buyer’s remorse on Dodd-Frank?
Some committee members used the hearing to interject their political views on the Dodd-Frank financial industry regulations established during the Obama administration.
Rep. Ann Wagner, R-Mo., said that “Dodd-Frank created a world in which size equals survival.”
Rep. Patrick McHenry, R-N.C., said Democrats committee members “seem to be on a buyer’s remorse tour” with Dodd-Frank.
“We are examining the potential merger of two institutions that have pointed to the post Dodd-Frank regulatory landscape and the cost of compliance as a driver behind this decision to merge,” McHenry said.
“It was Dodd-Frank and the resulting 400 new financial regulations that have forced consolidation in the financial services industry.
“These two institutions are, in essence, large Main Street banks doing standard, non-capital, markets-oriented business,” McHenry said. “This is a standard merger process by which the Fed is well equipped to deal with the law.”