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Regional lenders BB&T, SunTrust combine to scale up

By Leela Parker Deo and Lynn Adler

NEW YORK, Feb 7 (LPC) - The combination of two Southeast regional banking giants BB&T Corp and SunTrust Banks Inc, in a deal valued at US$66bn, positions the combined company to compete with rival lenders on a national scale.

In what is the biggest US bank merger since the financial crisis, the bulked up balance sheet means more resources to expand the combined bank's syndicated lending for acquisitions, buyouts and middle market company growth efforts, bankers said.

While joining forces will enable the merged bank to provide more support to clients, and potentially climb the ranks of lenders by loan volume, some bankers said the highest-tier lenders will likely be insulated from this increased level of competition.

“They are combining their gunpowder, and after they combine assets they will be right around where US Bank is – and US Bank is pretty active in extending lending and building out relationships,” said a senior banker.

“After they combine maybe they’ll be more active: SunTrust is selective, but already active, and BB&T likes term loans. Maybe they’ll be another US Bank, though I don’t think they are going to be like a Citi or BAML,” said the banker.

In the all-stock merger of equals, BB&T is buying SunTrust for about US$28bn in stock.

"It's an extraordinarily attractive financial proposition that provides the scale needed to compete and win in the rapidly evolving world of financial services,” said BB&T Chairman and Chief Executive Officer Kelly S. King Thursday in a statement.

Once merged, the new bank will have about US$442bn in assets, putting it in the same camp as the US$467bn of assets for rival US Bancorp, Reuters reported.

US Bank, through a spokesperson, declined to comment.

The syndicated bank loan league tables from LPC for last year’s overall bookrunner show the disparity between lenders.

SunTrust ranked 16th with US$54.4bn for a 1.99% market share and BB&T placed far below in 52nd place with US$3.6bn and 0.13% share.

While US Bank was in third place with US$60.7bn and 2.2% share, Bank of America Merrill Lynch (BAML) took the top spot with a vastly higher US$356.1bn and 13% market share.

In the market for lending to mid-sized companies, SunTrust has also been more dominant than BB&T, though well behind market leaders such as Wells Fargo.

SunTrust ranked 9th in the 2018 US overall middle market bookrunner league tables with US$5.9bn for a 3.23% market share, whereas BB&T was 78th with US$187.5m and a 0.10% share. At the top, Wells Fargo led with US$23.8bn and a 14% share.

GAUGING THE COMPETITION

The new as-yet unnamed company is looking to complementary yet distinct business models to drive growth. According to an investor presentation the company sees opportunities to draw on SunTrust’s middle market corporate and investment banking business to generate additional revenue and BB&T’s community banking model to build scale.

SunTrust has been more active in the realm of sponsor finance—lending to private equity backed businesses. BB&T has focused more on the corporate side of commercial lending via the pro-rata market, which includes loans made to banks and revolving credits.

The combined entity will also be the number one regional bank-owned investment bank, the presentation said.

Still, other bankers said the relatively light BB&T presence may minimize the threat the combined bank poses for other syndicated lenders.

“BB&T wasn’t really a competitor in the syndicated loan market, so we’re not necessarily seeing this as a change,” a banking source said. “The business that had been a competitor, at SunTrust, will just be under a different flag. It’s not additive. The folks that we competed with at SunTrust, the name just changes. BB&T is buying a capability that SunTrust has, so it’s not like there’s more of a competitor now.”

Regional and commercial banks that lend to mid-sized corporates as well as to private equity-backed companies have faced intense competition in recent years amid the rise of direct lenders.

This bank merger is another indication of the consolidation widely expected to continue in the banking sector.

This development certainly makes for another strong competitor, said a middle market banking source, but also means one less bank competing in the pro-rata market. (Reporting By Leela Parker Deo and Lynn Adler; Editing by Michelle Sierra and Jack Doran)