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BB&T Churning Out Deals: More on the Cards?

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Bellwethers like Bank of America Corp. BAC , JPMorgan Chase & Co. JPM and Citigroup Inc. C are witnessing considerable improvement, but mostly through cutting costs and reducing exposure to trading

losses.

On the other hand, second tier banks like BB&T Corporation BBT , U.S. Bancorp USB and The PNC Financial Services Group, Inc. PNC are driving revenues by taking advantage of the change in market dynamics post the 2008 crisis.

BB&T's Growth Tale

BB&T is riding high on synergies from a number of acquisitions. This NA-based bank is on a deal-making spree and crossed the $200 billion mark in total assets by signing a definitive agreement to acquire Allentown, PA-based National Penn Bancshares, Inc. in August.

While the company will incur $100 million as pre-tax merger and integration costs, it expects to achieve cost savings of $65 million (roughly 30% of National Penn Bancshares' operating expenses) annually with the deal anticipated to be accretive to earnings in the first full year.

Meanwhile, BB&T sealed deals to acquire 41 branches from Citigroup in March this year, The Bank of Kentucky Financial Corporation in June and Susquehanna Bancshares, Inc. in August. This has helped the company expand its hold in new and existing areas.

Though the next acquisition may cross the $250 billion threshold for BB&T, the company seems keen on striking more deals, as indicated by the Chairman and CEO Kelly King in a recent Financial Times report. However, the company will have to conform to more complex and stringent regulations once it steers past the $250 billion mark.

BB&T is ready to face tougher capital and liquidity requirements along with closer regulatory scrutiny, which may lead to additional costs in order to continue to be an acquisition powerhouse. The company has completed over 80 acquisitions over the past 30 years and is expected to grow assets at a rate of 5-10% each year going forward.

Notably, these acquisitions seem more crucial now with large banks keeping the mergers and acquisitions ("M&As") activities at an arm's length due to complex regulations and associated costs. In contrast, smaller and midsized banks have been actively pursuing such deals to ease the pressure of the low interest rate environment on their profitability.

M&As on the Rise

The surge in M&A activity could be attributable to the midsized banks' strategic plans to boost revenue growth with lesser regulatory compliance costs and other expenses, compared to large banks.

Several "under the $10 billion" companies, a limit after which banks are required to conduct annual stress tests under the 2010 Dodd-Frank financial law, are opting for a deal as a way of tackling costly new regulations. This offers great growth opportunities to mid-sized regional lenders, which have been successful in receiving approvals despite stricter regulatory stance after the 2008 crisis.

Similarly, several small lenders across North America's fragmented banking space, which are struggling with high costs and low interest rates, are potential merger options for BB&T. Moreover, the company expects to receive regulatory approval by operating to the highest standards.

"In today's world, scale matters," King said. "I've made it very clear we are trying to get larger in this particular timeframe. Not because we want to be bigger but because we need scale to afford investments in technology and regulatory compliance."

Currently, BB&T carries a Zacks Rank #3 (Hold).

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JPMORGAN CHASE (JPM): Free Stock Analysis Report

BB&T CORP (BBT): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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