BB&T Corp. and SunTrust Banks Inc. plan to close hundreds of branches as part of their merger. A mapping analysis suggests the Washington, D.C., metro area will see the most closures.
Bank executives have said they expect to close about 740 branches, which represents the number of locations within two miles of each other. S&P Global Market Intelligence data shows 735 SunTrust branches within two miles of a BB&T branch, marking those branches as the potential closures. The Washington-Arlington-Alexandria, D.C.-VA-MD-WV metropolitan statistical area was the home of the highest number of those branches at 130 locations. The metro areas next on the list were the Atlanta-Sandy Springs-Roswell, GA MSA with 85 branches and the Miami-Fort Lauderdale-West Palm Beach, FL MSA with 67 branches. Other metros with significant overlap were concentrated in Florida, Virginia and the Carolinas.
While the BB&T-SunTrust deal creates a behemoth of a competitor, community banks could also benefit by getting a chance to win clients or poach talent. In addition to the branch closures, the banks will have to divest approximately $1.35 billion of deposits as part of the deal, executives said.
"If you're a bank in the geography of those two companies right now, you're going to get all sorts of opportunities from crumbs falling off the table, whether it's customers, loan officers or deposits. There will be an ability for smaller banks to get better and stronger from the fallout of this deal," said Anton Schutz, senior portfolio manager for Mendon Capital Advisors Corp.
"Wherever there's an overlap, it means there's an opportunity to close branches and cut costs," said James Barth, a finance professor at Auburn University and senior finance fellow at the Milken Institute. The banks will be consolidating branches to generate cost savings, some of which will be redeployed in technology investment. The combined bank's ability to invest in technology appeared to be a significant catalyst for the deal, with BB&T CEO Kelly King calling it "the ultimate disrupt-to-thrive" move. Even after the investments, the banks expect $1.6 billion of pretax cost savings, driven by branch reductions as well as other areas such as shared services or facilities.
The deposit divestitures are mandated by regulators to comply with antitrust laws. For every merger, the Federal Reserve conducts an analysis to ensure sufficient competition in the market. Regulators use the Herfindahl-Hirschman Index, or HHI, to measure a market's concentration. There are two primary calculations: One measures the overall concentration in the market after the deal; the other measures the change in concentration because of the deal. Regulators calculate the divestitures required to bring each HHI calculation within a certain range, enforcing the calculation that results in the smaller divestiture.
Conducting this analysis at the MSA level, S&P Global Market Intelligence estimates the banks will need to divest $1.27 billion of deposits. The Virginia Beach-Norfolk-Newport News, VA-NC MSA will see the most divestitures under this analysis at $432.1 million. The Winston-Salem, NC MSA was next with $245.6 million of divestitures.
Click here for a template that allows deposit market share analysis for a single market and HHI analysis for potential deals.
For a template that analyzes the distance between branches, click here.
More coverage of the BB&T-SunTrust deal:
Analysts see BB&T-SunTrust deal pushing other regionals to merge
Long-term BB&T relationship paying off for RBC Capital Markets
Creating the no-name bank
Washington Wrap — BB&T, SunTrust merger may accelerate M&A talks
Megadeal in US southeastern states could start new chase for banking scale
BB&T, SunTrust pledge deal will be 'best MOE in the history of banking'