Today, Sun Trust Banks (STI) and BB&T (BBT) announced a merger that would create the sixth largest bank in the United States (SPY). While BB&T was trading marginally higher in pre-market trading, Suntrust was trading almost 5% higher. BB&T CEO Kelly King termed the transaction as the “true merger of equals.”
According to the news release, “The pro forma company will have approximately $442 billion in assets, $301 billion in loans, and $324 billion in deposits serving more than 10 million households in the United States, with leading market share in many of the most attractive, high-growth markets in the country.”
The two companies see the merger as accretive. The news release adds, “GAAP and Cash EPS accretion per BB&T share in 2021 is expected to be approximately 13% and 17%, respectively (based on Street estimates). GAAP and Cash EPS accretion per SunTrust share in 2021 is expected to be approximately 9% and 16%, respectively (based on Street estimates.”
Banking stocks had a rough ride in 2018. In the fourth quarter, Bank of America (BAC) and Wells Fargo (WFC) lost 16.4% and 12.3%, respectively. American Express (AXP) and U.S. Bancorp (USB) lost 10.5% and 13.5%, respectively. Last year, we were in a rising interest rate environment, which is generally beneficial for the banking sector (XLF). However, a flattening yield curve dented sentiment since banks typically borrow short term while lending is for the long term. A slowing economic growth outlook doesn’t bode well either for the sector.
Meanwhile, Berkshire Hathaway (BRK-B) has been quite bullish on the banking sector. Read What to Watch in Berkshire Hathaway’s Upcoming 13 F for more information.