A more permissive regulatory environment culminated on Thursday in the biggest bank merger since the 2007-2009 financial crisis, and more deals are likely, analysts and investors said.
US regional lender BB&T Corp said it will buy rival SunTrust Banks Inc for about $28 billion in stock.
The banks hope to close the deal later this year. The timetable would have been improbable before the administration of President Donald Trump began easing crisis-era regulations, which had restricted expansion and boosted scrutiny of banks.
The merger will pressure other regional banks to consider their own deals, analysts said.
"The BB&T/SunTrust merger will open more eyes on the potential for more sizable bank M&A to occur," Jefferies analyst Ken Usdin wrote in a client note.
Bank of America Corp Chief Executive Brian Moynihan this year predicted a new wave of big bank mergers at the World Economic Forum in Davos, Switzerland.
Not everybody was pleased about the deal.
"This proposed merger between SunTrust and BB&T is a direct consequence of the deregulatory agenda that Trump and Congressional Republicans have advanced," said Maxine Waters, chairwoman of the House Financial Services Committee.
"The proposed merger raises many questions and deserves serious scrutiny from banking regulators, Congress and the public to determine its impact and whether it would create a public benefit for consumers."
BB&T and SunTrust said the combined bank would produce annual cost savings of around $1.6 billion by 2022. In a CNBC interview, executives said the merger would allow them to invest more heavily in new technology demanded by customers.
"The business has been changing and will be changing," SunTrust Chief Executive William Rogers said. "This gives us the opportunity to be absolutely the most competitive bank."
The combined company will operate under a new name and have around $442 billion in assets, $301 billion in loans and $324 billion in deposits. It will rival U.S. Bancorp, which has about $467 billion in assets.
Its footprint will cover the US East Coast, with new corporate headquarters in Charlotte, North Carolina. The combined company will retain operations in Winston-Salem, North Carolina, and Atlanta, Georgia, the home markets for both companies.
The two banks have long been considered natural partners and advisers said they do not expect another bank to make a bid. Hostile takeovers are rare in the banking world.
The banks struck the deal from a position of strength, analysts said. Each reported strong fourth-quarter earnings last month and there were no signs of pressure near to mid-term, said Terry McEvoy, managing director at Stephens.
"The end result of the transaction is a very powerful company in some of the best markets in the United States," he said.
Analysts largely expect regulators to approve the deal, although it is expected to draw scrutiny from vocal bank critics like Senators Elizabeth Warren and Bernie Sanders as well as from the Democratic-controlled House.
"These are both very clean banks. So ultimately, (it) should get done," said Stephen Scouten, analyst at brokerage Sandler O'Neill.
The combined company will remain comfortably under the asset threshold that would make it a systematically important financial institution, sparing it increased regulatory scrutiny.
Shares of Atlanta-based SunTrust jumped 8.3 percent to $63.62, above the acquisition price, while BB&T rose 2.4 percent to $49.71.
McEvoy said he expects the market's positive reaction to the deal to drive similar transactions throughout the year. Regional bank stocks, including KeyCorp, Comerica Inc and Regions Financial rallied on Thursday.
Super-regional banks, which typically have between $50 billion and $500 billion in assets, have been grappling with how to grow with fewer resources than the four largest US banks like JPMorgan Chase & Co and Bank of America.
The talks between the two banks began in 2018, according to advisers. Even though BB&T shareholders will end up with a majority of shares, a key point for SunTrust was that the deal would treat the banks as equals.
The two banks have hundreds of branches within two miles of each other, but they serve different segments of the market. SunTrust has more of a commercial focus and larger clients, while BB&T has a substantial insurance business.
WAVE OF DEALMAKING?
Deal activity in the banking sector languished after the financial crisis as stricter rules were imposed on lenders with more than $50 billion in assets and regulators barred banks with compliance issues from expanding.
Changes in US tax laws have lowered corporate taxes, freeing up capital, and Wall Street has long been expecting a wave of dealmaking in banking.
On Dec. 7, the Federal Reserve Board quickly approved two of the largest bank mergers of the year, Cadence Bancorp’s merger with State Bank Financial Corporation and Synovus Financial Corp’s merger with FCB Financial Holdings.
A Wachtell Lipton memo said the speed of the approvals was evidence of an "increasingly favorable regulatory environment for bank M&A."
As part of the deal, SunTrust shareholders will receive 1.295 shares of BB&T for each share they own. The per share deal value of $62.85 is at a 7 percent premium to SunTrust's closing price on Wednesday, according to a Reuters calculation.
BB&T shareholders will own 57 percent of the combined company and SunTrust will own the rest. Kelly King, BB&T's chief executive officer, will be CEO until Sept. 12, 2021, after which SunTrust CEO Rogers will take over.
The two companies called it a merger of equals, valued at $66 billion.
RBC and Wachtell, Lipton, Rosen & Katz advised BB&T. Goldman Sachs, along with the investment banking unit of SunTrust and Sullivan & Cromwell, advised SunTrust.