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BB&T, SunTrust Merger Helps Prop Up Regional Bank ETFs

This article was originally published on ETFTrends.com.

Regional bank stocks and sector-specific ETFs shook off the broader market weakness after BB&T (BBT) made a deal to buyout SunTrust Banks Inc. (STI) , combining the banks to form the sixth-largest U.S. retail bank.

On Thursday, the iShares U.S. Regional Banks ETF (IAT) advanced 0.7% and  SPDR S&P Regional Banking ETF (KRE) increased 0.7%.

BB&T and SunTrust struck an all-stock deal in what amounts to the largest U.S. bank merger since the financial crisis, with a combined company value of $66 billion, the Wall Street Journal reports. The newly merged bank will have about $442 billion in assets.

BBT shares gained 2.1% and STI shares rose 8.3% on the announcement. IAT includes a 7.0% position in BBT and 5.0% in STI. KRE includes a 1.7% tilt toward STI.

The deal marks the first deal brokered for big U.S. banks after a tough regulatory environment following the financial crisis kept banks sitting out of the recent slew of mergers and acquisitions. Big bank mergers stopped altogether after the financial crisis when a number of government directed mergers created a number of megabanks in a bid to stabilize the financial markets. Furthermore, banks had to tidy up their balance sheets and increased regulatory scrutiny under the Obama administration added additional hurdles to bank mergers. However, under the Trump administration, some of the more stringent rules were relaxed and helped bring banks back to the table.

“The regulatory environment is much easier for something of this size to happen,” Brian Klock, an analyst with KBW, told the Associated Press, adding that the easier regulatory environment could trigger more large bank mergers ahead.

The merger is also seen as a way for smaller regional lenders to compete with big national banks like JPMorgan Chase & Co and Bank of America Corp. The larger national U.S. banks are drawing a larger crowd, notably a greater share of younger consumer accounts, due to their digital offerings.

To better keep up with their larger competitors, regional banks have been investing heavily in technology, and BB&T and SunTrust said the merged bank will also put more into digital accounting.

“It’s an extraordinarily attractive financial proposition that provides the scale needed to compete and win in the rapidly evolving world of financial services,” CEO Kelly King said said in a prepared statement.

For more information on the financials sector, visit our financial category.