BB&T and Sun Trust bank are both giant institutions in their own right. However, now since they have decided to merge, another “mega-bank” is likely to come into existence in America. Both these banks have been in operation for over 100 years, hence have their own heritage. Financial analysts are not clear on whether the merger is good for the overall economy. In this article, we will have a look at some of the positive and negative points raised in the debate.

The Details of the Merger

The merger between BB&T and Sun Trust bank is being called a merger of equals. The merger will create a combined entity which is likely to have a net worth of $66 billion. The combined entity will hold over $400 billion in assets. It will also hold close to $330 billion in savings from more than 10 million households in America. The combined entity will end up being the sixth largest entity in the country. This banking merger is going to be the largest since the economic crisis of 2009.

The merger between the two companies is an all-stock deal. This comes as a surprise because Trump’s recent tax breaks have freed up a lot of cash at the banks. Analysts were expecting that some of this cash would make it to these acquisition deals. The combined entity will come up with a new name. Also, the headquarters will be located in a different place.

SunTrust bank currently has its headquarters located at Atlanta, Georgia whereas BB&T has its headquarters located at Winston-Salem, North Carolina. It is rumoured that the new combined entity will be based out of Charlotte North Carolina which has a well-developed banking infrastructure since it already houses Bank of America.

A Merger of Equals

The term “merger of equals” is being used a lot. However, analysts are really doubtful about whether this is indeed a merger of equals. This is because the fact of the matter is that BB&T will end up having more control over the entity than Sun Trust.

BB&T will own 57% of the new entity and hence will exercise more control over it. This is strange because of the fact that both Sun Trust and BB&T have equal assets in the ballpark of $210 billion. However, at the present moment, the shares of BB&T are selling at a premium in the market. This is the reason behind the higher valuation received.

What Caused The Merger?

The main driving factors behind these mergers have been listed down.

• Cost Savings: The main driving factor behind any merger is economies of scale. The combined entity should ideally be able to achieve the same level of efficiency with lower costs.

  Financial analysts have estimated that savings of close to $1.6 billion are likely to happen because of this merger. This is because the combined entity will be able to reduce many non-value adding expenses that currently take place in both banks. For instance, the combined entity is likely to cut up a lot of physical brick and mortar branches. They will attempt to serve the same number of customers with the same efficiency from fewer branches using online banking as a supplementary tool.

• Technological Budget: According to some analysts, the merger is happening because these second-tier banks want to increase their ability to spend on technology. These analysts believer that technological changes are what is driving the banking market.

  The future of the entire banking industry is entirely dependent upon technology. Consider the case of Bank of America for instance. It has consistently been pursuing a strategy of digitization. The bank has increased the number of active online users by 5 million in merely 3 years. Also, the number of deposits which are initiated digitally have gone up by 10 percentage points in the past 3 years. It is likely that Bank of America has achieved this feat because it has spent a lot of money on technology and cloud computing. It has built apps which are user-friendly and at the same time function efficiently.

  Second-tier banks like BB&T and Sun Trust do not have the budget to build such apps. Hence, they are joining forces to compete with the Bank of Americas, the Wells Fargos and the JP Morgans of the world. This is the reason why these analysts predict that the BB&T and Sun Trust bank merger is just the first of many mergers. They believe that all second and third-tier banks will have to merge in order to stay relevant.

• Regulations: The Trump administration has reduced regulation and oversight of the banking industry. This is the reason why BB&T and Sun Trust will find it easier to merge. They might still face many regulatory hiccups. However, they will be considerably less compared to the previous administration.

Negative Effects of the Merger

There are many negative points as well. Some have been listed below.

• Brand Dilution: Sun Trust Bank is the largest bank in Atlanta, Georgia. It has been in existence since 1891! It has a huge brand appeal amongst the people of Georgia. Since the combined entity will have a new name, the legacy of BB&T and Sun Trust will be forgotten. The brand loyalty that they have carefully cultivated over the years will be lost.
• Layoffs: Since a lot of branches are going to be shut down, a lot of staff will be eliminated as well. The combined entity has reassured the client facing staff that they will not be laid off. However, this assurance doesn’t apply to people who work in back-office functions and other supporting roles such as technology and HR.
• Too Big To Fail: Also, this mega-merger is once again creating banks which are too big to fail. This is the exact opposite of the stated intention of the American government. If another crises were to begin, the government would once again be forced to bail out these banks because of their relative size.