Bankers ‘Banging on the Doors’ as BB&T, SunTrust Spur Deal Talk

(Bloomberg) -- For years Wall Street has braced for the next wave of mergers in American banking. At last, the first rush has hit.

The tie-up of BB&T Corp. and SunTrust Banks Inc., the biggest banking merger since the 2008 financial crisis, could herald a new era of rapid consolidation among the nation’s regional banks.

In many ways the BB&T-SunTrust deal underscores the growing might of the country’s largest banks since they were bailed out by taxpayers a decade ago. Their hold over the industry and its customers has left once-thriving regional rivals struggling to compete, making smaller lenders prime targets.

“You can be sure that the investment banks that cover the commercial banks of that size, the middle-market size, are banging on the doors with ideas,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “If you go through all the regions, I think you’ll find some banks that are BB&T or SunTrust-sized, and they’re going to be merging.”

Who could be next? Here are the names bankers and analysts are mentioning:

Alabama’s Regions Financial Corp., based in the heart of the Southeast, will be facing a much stronger competitor in the combined operations of BB&T and SunTrust. It’s also about the right size, with $126 billion assets, and could appeal to a number of bigger lenders that have flirted with expanding in the region, including Toronto-Dominion Bank.

In the Midwest, three midsize banks are duking it out in Ohio: Fifth Third Bancorp, Huntington Bancshares Inc. and KeyCorp. Ample opportunities to cut overlapping branches means a link-up could make financial sense, and all three have shown an appetite to get bigger through deals.

Bankers ‘Banging on the Doors’ as BB&T, SunTrust Spur Deal Talk

Comerica Inc., based in Dallas, is a perennial takeover target and well-positioned in the coveted banking market of Texas, where the economy is booming on the strength of a resurgent oil and gas industry. Under pressure from investors, Comerica executives in 2016 met with advisers to determine the feasibility of a merger, but decided it was a bad time to pursue a sale.

The BB&T acquisition of SunTrust also raises the prospect of whether U.S. Bancorp and PNC Financial Services Group Inc., the nation’s two largest regional banks, will now seek to strike transformational deals of their own. Minneapolis-based U.S. Bancorp has said it’s weighing a branch expansion in Florida, North Carolina and Texas.

“If the deal is well-received, this at least takes the market to say, ‘Could U.S. Bancorp go out and buy Regions?’” Stephen Scouten, Sandler O’Neill & Partners, said in a telephone interview. “A lot of these potential deals kind of open up in investors’ minds, and the discussion becomes where are the opportunities for others to grow in these same areas.”

With mega-mergers back on the table, there could be an opening for transactions involving at least one foreign-owned lender. Japan’s Mitsubishi UFJ Financial Group Inc., the owner of Union Bank on the West Coast, has for years sought to be a top lender in the U.S.

Optimism about potential deals drove regional bank stocks higher Thursday. Comerica, Huntington, KeyCorp and Citizens led banks higher on Thursday, as investors grew optimistic that Thursday’s announcement would spark further merger activity in the industry.

America’s regional lenders have watched the three U.S. retail-banking giants -- JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. -- each climb past $1 trillion in deposits as their technology budgets alone outpace what the smaller firms spend on everything. As more consumers access their banks through apps instead of branches, the pressure to keep up has grown more severe.

“The deal represents an acknowledgment of the growing need for scale in the U.S. banking business,” Saul Martinez, an analyst at UBS Group AG, said in a note to clients. “Considerable technology investment needs and limited structural growth suggest even larger regional banks may look to expand through acquisition.”

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