Garnet Capital Advisors Blog

Excerpt: Are we on the cusp of a new wave of bank consolidations, starting with the recent M&A involving BB&T and SunTrust? Read on to learn more.

Banking is currently experiencing the next wave of bank consolidations.

Has a new wave of bank consolidations started?

Bank consolidations appear to be more attractive to midsize banks these days, thanks to current regulatory and market conditions, including heightened competition from bigger banks, pending regulatory changes, and the explosion of mobile banking.

Even those that are not contemplating merging with other banks are already making changes to their operations and costs to streamline baking processes.

Such an environment may be the catalyst for an increased number of bank mergers and acquisitions throughout the remainder of the year, particularly among midsize institutions. Partnering up with other banks could give midsize banks stronger footing and make them more competitive on a national level.

In turn, this can directly benefit consumers by providing them with far more products and services, while investors may be able to take advantage of more growth.

Earlier this year, BB&T and SunTrust merged in a $66 billion transaction, making it the largest American bank deal since the financial crisis a decade ago. Such a deal is said to be a catalyst for further bank mergers in the coming months and years. BB&T bought SunTrust in an all-stock deal that puts the latter company at a value of approximately $28 billion, excluding debt.

There have also been several smaller M&A deals, including Fifth Third Bancorp’s acquisition of MB Financial for $4.7 billion last year. But the BB&T/SunTrust consolidation is the biggest one in over a decade.

SunTrust was recently bought out by BB&T in the biggest M&A since the financial crisis.

But while we may be in the midst of a new wave of bank consolidations, they have already existed in the past thanks to the likes of Andrew Craig. Working predominantly in the local banking industry after serving with the Army, Mr. Craig had been a key player in the consolidation of thousands of banks by the time he retired. Such transactions led to the creation of a few big banks across the country.

Serving as CEO of Boatmen’s Bancshares Inc. from 1988 to 1996, Mr. Craig was instrumental in developing powerful regional bankers in nine states thanks to all the acquisitions he was part of.

He sold Boatmen’s to NationsBank Corp. in 1996 for $9.5 billion, then took on the role of chairman of NationsBank for 16 months. Two years later, NationsBank merged with BankAmerica Corp. and took the name Bank of America.

As a result of that wave of bank consolidations, the number of commercial banks in the U.S. with federally-backed dwindled from 13,165 when Mr. Craig first embarked on his banking career to 8,777 by 1998.

The recent BB&T and Suntrust consolidation may be the start of many more consolidations to come. Banks are looking to acquire deposits rather than branches in the current regulatory environment.

No matter what the banking industry's environment is today and will be in the future, banks are in a position to ensure that their loan portfolios are strong enough to resist any repercussions and volatility in the market.

To ensure such strength, banks are advised to consult with a seasoned loan sale advisor like Garnet Capital to help them sell off underperforming assets and replace them by acquiring more robust, shorter-term assets.

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