Question

Recently it was announced that BB&T and SunTrust will merge in the next year. The new bank (not yet named) will become the sixth largest bank in America. Do you favor this merger? What are the pros and cons of such a merger? Do you believe this is the beginning of more consolidation in the banking industry?

Answer 1

The merger, spin-off, divestiture or reverse merger are part of the business and management have to take a call considering the situation. There is no perfect strategy or decision other than adaptation according to the situation.

In this case, BB&T and Suntrust will merge in an all-stock deal which will create $66 billion entity and 6th largest bank in the US. This merger seems to be the largest since the 2008 financial crisis. This merger seems to demand of the current situation and quietly appropriate.
Now regulatory environment quite strict in the US since the financial crisis a decade ago so a merger to create a volume and cut the cost is necessary.
Further, digital banking through mobile app and internet is soon going to be hugely popular and banks need to develop these technologies. A merger will collate the funds for a similar technological platform.

Obviously, there some negative aspects also as a merger mean there will a reduction in redundant staff. Also, there will be a closure of some branches who are vicinity with each other.

However, it should be expected that there will be some more mergers and we could soon witness consolidation in the banking sector. There are three mergers already in the process including Chemical Bank and TCF Bank.