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Biggest U.S. Bank Deal in Decade Fails to Trigger M&A Frenzy

Hannah Levitt

(Bloomberg) -- Truist Financial Corp. is officially a thing.

The $28 billion deal combining BB&T Corp. and SunTrust Banks Inc. -- the largest U.S. bank merger in more than a decade -- was completed after trading closed last week. That left the rebranded Charlotte, North Carolina-based firm poised to start trading on the New York Stock Exchange Monday morning under the ticker TFC.

For all the predictions that this transaction would kick off a wave of deals among the biggest regional lenders, the reality in the 10 months since it was announced has been underwhelming. The second-biggest bank deal this year was valued at about $3.9 billion, not even a fifth the size of BB&T’s purchase of SunTrust.

“The reason you didn’t see an immediate splash was because I think our deal was large, it caught everybody off guard, I think a lot of people were skeptical as to whether it would get approved,” Truist Chief Executive Officer Kelly King said in an interview. “It was a wait-and-see attitude. Now the wait-and-see is over.”

Truist shares rose 0.7% to $54.61 at 10:58 a.m. in New York.

When King and Bill Rogers, SunTrust’s former CEO and Truist’s president and chief operating officer, announced the deal in February, they pointed to cost savings that would free up money for technology spending. Truist agreed not to shutter any overlapping branches for a year. After that, some will close, King said.

Scale will likely become more important as banks compete in a technology arms race, according to an October McKinsey & Co. report. Combinations can free up money for tech spending, the consultancy said at the time.

“We are shocked there haven’t been more mergers since the announcement of BB&T and SunTrust,” Wells Fargo & Co. analyst Mike Mayo said in an interview. “The need for scale is greater than ever before.”

Banks looking to do major deals may be facing a window that closes at the 2020 election. Senator Elizabeth Warren, a Democratic presidential candidate, introduced legislation last week requiring more scrutiny for bank mergers. She cited the BB&T-SunTrust deal in the first paragraph of her statement.

The potential for harsher scrutiny may add a sense of urgency to any potential tie-ups.

“If you’re really looking to do something meaningful, you probably want to do it within the next 12 months,” Kyle Sanders, an analyst at Edward Jones, said in an interview.

Truist’s King said the same: “Certainty is better than uncertainty, so if I were starting fresh today trying to think about doing something, yeah, I’d try to get it done before the election, just because who knows?”

Lenders including Regions Financial Corp. and Toronto-Dominion Bank have expressed interest in transactions. Still, executives and analysts around the industry aren’t convinced the once-predicted wave of big deals will arrive soon.

For one thing, valuations are high: U.S. Bancorp, PNC Financial Services Group Inc. and Citizens Financial Group Inc. are among U.S. regional lenders that saw their shares hit 52-week highs last week.

Bank executives have varying views on the best way to get bigger in a world where physical footprint is less relevant. Earlier this year, U.S. Bancorp CEO Andy Cecere said the Minneapolis-based firm is more likely to make a large acquisition than a small one because of its ability to enter new markets with its “digital-first” strategy.

“I still don’t expect to see deal after deal after deal, but I do think there are some that we’ve thought about in the past that look like they might make sense,” said Sanders, the Edward Jones analyst.

(Updates with shares in fifth paragraph.)

To contact the reporter on this story: Hannah Levitt in New York at hlevitt@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Dan Reichl, Peter Eichenbaum

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