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Why the BB&T-SunTrust Merger Is Getting a Thumbs-Up From Wall Street

It's been a decade since the banking industry has seen merger and acquisition news like this: BB&T (NYSE: BBT) is buying SunTrust (NYSE: STI) in what the two institutions call a merger of equals. When joined, they will create the sixth-largest bank in the country. But why is it happening, and why now?

In this segment from MarketFoolery, host Chris Hill and Motley Fool Director of Small-Cap Research Bill Mann unpack the reasons these large regional banks felt the need to join forces, the changing conditions that made the deal more attractive, the unusual way the joined company will handle the CEO's job, its HQ relocation plan, and more.

A full transcript follows the video.

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This video was recorded on Aug. 9, 2017.

Chris Hill: We've got to start with the deal of the day, though. We got a bank merger.

Bill Mann: For the first time in more than a decade, we've got a big bank merger.

Hill: We do. SunTrust and BB&T are teaming up in a $66 billion, what's being called "a merger of equals." They're not quite equals. It's an all-stock deal. This creates the sixth-largest bank in America. Shares of both SunTrust and BB&T are up, so I'm assuming this is a no-brainer. If all you're doing is looking at the stocks, you go, "Wow!"

Mann: You are what the scoreboard says you are. A couple of things have happened. One is that the Trump administration has lowered some of the inhibitions for bank mergers that have been in place since the global financial crisis. The other thing that has happened is that banking, particularly deposit-taking, has changed a little bit. The regional banks, of which SunTrust and BB&T are, are having a little bit of a difficult time competing with Citibank. Even Goldman Sachs now has checking accounts and branch access and things of that nature. So, it's a good merger for both of them. They are not community banks anymore. They risked being in that spot where they weren't the hugest, so they didn't have access to certain types of capital. But they're not tiny anymore.

Hill: I get that there are a lot of good things about this, a lot of synergies that can be wrung out. This does seem like the resulting entity should put them in a better position to compete against the even bigger banks. That being said, there are a couple of things behind this deal that have not just you and me, but I think a lot of people, scratching their heads. Let's start with the fact that we've got Kelly King, the CEO of BB&T, he's going to be the CEO of the combined company until early September of 2021, when William Rogers, the CEO of SunTrust --

Mann: I want to call him Will Rogers. Desperate to.

Hill: William Rogers is going to take over as CEO. Why? Why are they having this revolving door in the corner office?

Mann: It's a little bit of actuarial arbitrage, as we might call it. Kelly King had said earlier that he was planning on retiring in 2021. So, it's a pretty clean process. BB&T is the acquiring bank, even though it's a merger of equals.

Something funny about BB&T, BB&T is from eastern North Carolina. The company is called Branch Banking and Trust. Everyone thinks that has to do with their strategy. No. The co-founder from 1872 was named Branch.

Hill: Oh!

Mann: Yeah! Alpheus Branch and Thomas Jefferson Hadley founded this bank. It's a bank that has retained the name of its founder for 150 years.

The other interesting thing about this merger is that BB&T is based in Winston-Salem, North Carolina, and SunTrust is based in Atlanta, but after the merger, they're relocating headquarters to Charlotte. Charlotte will once again have the headquarters of two of the six largest banks in the country.

Hill: That's right, because Bank of America is down there.

Mann: Bank of America's there. Also, Charlotte is basically the No. 2 headquarters for Wells Fargo. So, once again, Charlotte, Bank City, U.S.A. may be the biggest winner in the whole deal.

Hill: They have not decided on a name for the resulting entity --

Mann: It has to be Branch, now that we've determined the history. How can you walk away from that?

Hill: [laughs] It'll be interesting to see what they come up with. Certainly, we've seen rebranding efforts go awry. Hopefully, they do no harm.

By the way, before we move on, can you share with the dozens of listeners what you shared with me? The little fun tidbit about SunTrust Bank, which I was not aware of?

Mann: Oh, yeah! This is actually a pretty big loss for Atlanta because SunTrust is an Atlanta institution. One of the things that SunTrust has in a vault is the formula for Coca-Cola. The Coca-Cola Company keeps their original formula hidden, locked in a vault at SunTrust.

Hill: Do you think that's now going to be moving to Charlotte?

Mann: Well, maybe! Once again, we have an opportunity to rename a stadium since the brand-spanking-new Atlanta Braves stadium is SunTrust Field. Who knows? I don't know if they'll move the formula or not. I doubt it's hard to move a recipe. [laughs] But it's probably fine where it is.

Bill Mann has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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