As BB&T Corp. considers a potential merger, some of the bank's more-likely targets would trigger significant deposit divestitures.
In an Aug. 7 investor presentation, the bank's executives said they are generally looking for a bank with $20 billion to $30 billion in assets and that is in-market so it can generate cost savings of 30% to 50%.
Those parameters suggest a relatively short list. While in-market deals promise cost savings, some of the branch closures may be dictated by regulators, not management strategy. In-market deals can trigger mandatory deposit divestitures to allay concerns over market competition.
One of the potential targets that meets many of BB&T's requirements is Fulton Financial Corp. The bank has $20.2 billion in assets concentrated in Pennsylvania markets that would push BB&T into the top five ranking. A merger of Fulton and BB&T would require divestitures in four metros, most notably the Lancaster, Pa., market that would trigger the divestiture of $1.5 billion of deposits. While that deposit sale would be large, it is much smaller than the $13.2 billion of deposit divestitures required by regulators when Fleet Financial Group acquired BankBoston Corp. in 1999.
When two banks merge, regulators require a market concentration analysis of the combined entity. Working with the Department of Justice, regulators want to ensure any deal does not drastically affect the competitive landscape. The market concentration analysis relies on the Herfindahl–Hirschman Index, also known as HHI.
The index is calculated by expressing each bank's market share in a given metro area in basis points, squaring that number and summing the squares for all banks in the metro area. The higher the resulting number, the more concentrated a market.
Regulators will require divestiture if the HHI test meets two criteria. First, the post-merger HHI has to be greater than 1,800 basis points. Second, the increase in the post-merger HHI from the pre-merger HHI has to be a jump of at least 200 basis points. Regulators will then require banks to divest deposits sufficient to hit either the 1,800 total score or the 200 increase figure, requiring whichever divestiture is smaller.
Looking elsewhere on BB&T's shopping list, First Horizon National Corp. would also require divestitures under the HHI analysis. Although First Horizon's asset size north of $40 billion might be larger than BB&T's ideal range, the merger would provide a compelling expansion into Tennessee for BB&T, putting First Horizon on the list of potential targets in a note by Raymond James analyst Michael Rose.
A potential merger of BB&T and First Horizon would require divestitures in 10 metro areas, mostly in North Carolina — where BB&T is headquartered. The largest deposit divestiture would be in the Hickory-Lenoir-Morganton, N.C. metro area, which would require $253.3 million of deposit sales.
Looking at other potential targets, BB&T acquisitions of BankUnited Inc. or IBERIABANK Corp. would not trigger any divestitures. Deals with Prosperity Bancshares Inc. and Hancock Whitney Corp. would each require a divestiture at a single county but not any metro areawide divestitures.
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