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BB&T nearing the end of its consent order, but analysts debate future deals

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BB&T nearing the end of its consent order, but analysts debate future deals

BB&T Corp. may be nearing the conclusion of its regulatory order, but analysts who cover the company are split on how soon it could return to the mergers-and-acquisitions marketplace.

The bank announced June 29 that some of its regulators terminated a consent order issued in December 2016 to Branch Banking and Trust Co. All that remains is the Federal Reserve's order at the holding company, issued a month later. While management has been vocal about doing deals, the bank's recent capital return plan could hint that nothing sizable is on the horizon.

The order mandated improvements in internal controls over Bank Secrecy Act and anti-money-laundering compliance, and analysts said at the time that it effectively prohibited the bank from engaging in M&A. Prior to its issuance, the bank went on a 12-month M&A streak in late 2014, and it signaled it would pause in spring 2016. The company has said its hiatus in the M&A market is strategic.

On the bank side, it acquired Bank of Kentucky Financial Corp., Susquehanna Bancshares Inc. and National Penn Bancshares Inc. It also grew its insurance offerings through its acquisition of Swett & Crawford. Even throughout the consent order, executives continued to voice interest in M&A. Chairman and CEO Kelly King said in October 2017 that the bank would be interested in in-market deals that would allow it to cut expenses and right-size its branch network. However, King cautioned that this "does not signal BB&T's getting ready to go out on some big rampage" and would follow a conservative deal strategy focused on avoiding shareholder dilution.

That insight seems to line up with the recent results from the 2018 Comprehensive Capital Analysis and Review, said Keefe Bruyette & Woods analyst Brian Klock, speaking after the result's release but before news of the consent order. Klock pointed out that BB&T's announced capital deployment of $1.7 billion in dividends came in slightly lower than the $1.9 billion he expected. He added that the bank kept its common equity Tier 1 ratio in a severely adverse scenario at 6%, higher than some of its peers. He said he does not believe the bank is pricing in a sizable deal or another large intangible with capital levels that high.

"You can put in an acquisition [into CCAR capital deployments], but if they had an acquisition in there, it would be much less than 6%," he said. "They must not be expecting to do a deal, which is actually somewhat interesting."

He pointed out that the bank is one of the largest institutions to submit a nonadvanced approach, which may be one reason why it kept capital levels higher than other nonadvanced firms. Some of those firms may stop submitting stress tests altogether due to regulatory reform; BB&T, which had $220.73 billion, could be excluded from such relief.

But if the bank was interested in smaller, add-on acquisitions, Compass Point analyst Laurie Havener Hunsicker identified 10 markets within its footprint where it could grow in a July 3 report: metro Washington, D.C.; Atlanta; Miami-Fort Lauderdale; Charlotte, N.C.; Baltimore; Philadelphia; Raleigh, N.C.; Virginia Beach, Va.; Richmond, Va.; and Dallas. She pointed out that, except Dallas and Virginia Beach, the bank has a top-10 spot in all of these cities but enjoys less than 10% market share.