BB&T And SunTrust to Merge, But Why?

BB&T and SunTrust Bank announced their merger this morning. The banks are the 12^th and 13^th largest US banks based on assets and the combined entity will become the sixth largest US bank. (A complete list of the largest banks based on asset size is here).

I spent my morning reading all of the articles across financial media that have been trying to explain the rationale for this merger, which is the largest proposed bank merger in over a decade. I then waited until 10 AM to watch the CEOs of the two institutions appear on CNBC.

I am not seeing any reason for consumers to be excited about this merger.

Bank of America and Wells Fargo have proven over the last decade that bigger is not better. Their large asset size has not enabled a better lending portfolio, nor has it enabled them to extend more meaningfully into new or more creative financing initiatives in the public interest.

In terms of consumer banking, their large size does not necessarily enable them to offer more creative mortgages products, home equity loans or auto loans. Neither these two - nor JP Morgan Chase or Citibank – have used their size to offer competitive savings rates or CD rates.

We are living in a world where small and creative institutions can offer more unique solutions. We have seen an influx of smaller banks and tremendously talented so-called Neobanks that offer technology solutions that outflank anything that the larger banks can produce. It is a sheer fact that in relation to technology, being smaller and more nimble is an advantage.

Therefore, when Kelly King, BB&T Chairman and CEO, and Bill Rogers, SunTrust Chairman and CEO, began speaking on CNBC this morning about the primary driver for their merger was technology investment, it struck me as being about as compelling as a Trump State of the Union address. The truth is that both banks, in their current position and without a merger, should be able to find the technology talent and resources in Atlanta or Charlotte to compete technologically across all consumer and the institutional spectrums.

Towards the end of the interview, Sara Eisen asked point blank whether this merger is in fact a defensive move designed to address the issue of contracting net interest margins. Kelly King, who has always been a straight shooter on CNBC, turned very candid and indicated that his view of some sort of inflection point in net interest margins is a motivating factor.

In other words, this merger is like an old-line industrial merger. It is being done to drive costs out of the system. Excessive branches in Florida, Georgia and the Carolinas will be shuttered, and people will lose their jobs. Investors in the companies may or may not make money, but few if any benefits are going to inure over the short or medium term to customers of either bank.

As someone who watches innovation in the banking space, I see nothing to celebrate here and I hope that this is the last, and not the first, of a new wave of bank mergers.

Full Disclosure: The author has been an investor in and a consumer of services of both BB&T and SunTrust in the past, and would have no interest in going near either one right now.