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Here's what must happen before Charlotte can land new HQ in BB&T, SunTrust deal

KNIGHT RIDDER/TRIBUNE 12:01 AM ET 2/13/2019

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Feb. 13--A proposed $66-billion merger between BB&T(BBT) and SunTrust Banks(STI), which would put a new bank headquarters in Charlotte, turned heads last week as the largest U.S. bank merger since the financial crisis about a decade ago.

The combination of Winston-Salem's BB&T(BBT) and Atlanta's SunTrust would form the sixth-largest U.S. bank, holding approximately $442 billion in assets and $324 billion in deposits, both companies said in announcing their plans last Thursday.

Industry experts largely expect regulators to approve the transaction this year. But the proposal is triggering outcry from some Democrats in Congress, who say they worry it will raise banking costs for consumers and create another large U.S. bank that might hurt the economy if it were to fail.

At stake for Charlotte are high-paying jobs and the luster of another bank headquarters. Right now it is headquarters only to Bank of America(BAC). Years of industry consolidation has cost the city the headquarters of other banks, making it tougher for Charlotte to hold onto its title of second-largest banking center in the U.S.

Among members of Congress criticizing the deal, California's Rep. Maxine Waters, chair of the House Financial Services Committee, and Massachusetts Sen. Elizabeth Warren, a prominent Senate Banking Committee member, have been the most vocal so far.

In a statement, Waters said the merger raises many questions and deserves "serious scrutiny" from Congress and regulators to determine whether it would benefit consumers. In a letter to Federal Reserve Chairman Jerome Powell, Warren said the deal "creates a new too big to fail bank and has the potential to hurt consumers."

BB&T (BBT), which will buy SunTrust in the deal, declined to comment. But in discussing the merger last week, SunTrust CEO Bill Rogers said the combination will benefit customers in various ways, including by allowing investments in better technology to serve them.

Charlotte is also expected to gain more jobs from the deal.

Executives from BB&T(BBT) and SunTrust said they currently have more than 2,000 workers combined in the Charlotte region and that that figure will grow, though they did not give estimates.

The headquarters for the new bank, whose name and location have not been announced, is also expected to bring to Charlotte an innovation and technology center where new products would be developed.

'Intensely concerned'

Consumer advocates say they continue to scrutinize the merger and are worried about its impact.

Bart Naylor, financial policy advocate for Washington, D.C.,-based consumer advocacy group Public Citizen, said his organization has begun asking regulators and Congress to investigate the merger's merits. His group is also speaking with members of Congressional banking and finance committees to get them to question the Fed's Powell about the deal when he appears before both panels this month.

"We are intensely concerned about this merger, both for what it means for consumers and the Southeast, and what it portends for the future in bank consolidation," Naylor said. "It will consolidate banking in the Southeast, leading to the closure of hundreds of branches, escalation of consumer costs and termination of thousands of employees."

Executives for BB&T(BBT) and SunTrust indicated that jobs could be cut as duplicate functions are eliminated and branches are closed. Approximately 740 combined branches for both banks are within 2 miles of each other, executives said.

BB&T (BBT) and SunTrust also said the new bank will serve more than 10 million households. According to an analysis for the Observer by the Federal Deposit Insurance Corporation, it is the largest bank merger in the U.S. since San Francisco'sWells Fargo(WFC) agreed to buy Charlotte-based Wachovia in 2008.

In the Charlotte metro area, one potential side effect of the deal is to further concentrate deposits in the hands of three big banks.

BB&T (BBT), Bank of America(BAC) and Wells Fargo(WFC) already hold more than 92 percent of the region's deposits, according to the latest FDIC data from June. Bank of America(BAC) holds the most, 74.5 percent, followed by Wells Fargo's(WFC) 14.6 percent and BB&T's(BBT) 2.9 percent. SunTrust is sixth with less than 1 percent.

Al Ripley, director of the N.C. Justice Center's consumer and housing project, said his group is examining the merger for any impact on competition. The nonprofit advocates on behalf of low- and middle-income people in North Carolina.

"We have to make sure that there is still ample competition in the marketplace that serves consumer interests and that consumers overall benefit from the merger," Ripley said.

Executives for both banks emphasized last week that their new bank will make substantial investments in technology, benefiting customers. BB&T(BBT) also said the combination will give customers access to more branches and an expanded network of automated teller machines.

Regulators must approve

Regulators and shareholders must still approve the purchase, which BB&T(BBT) and SunTrust said is expected to close in the last three months of the year.

Approvals will be needed from the North Carolina Commissioner of Banks and the Federal Reserve's full board, according to spokespeople for both agencies.

The FDIC also might have to authorize the deal depending on how the business combination is structured, according to a spokesman. BB&T(BBT) said state banking regulators in Georgia must also sign off.

Bert Ely, an Alexandria, Va.-based banking consultant, said there will be "lots of noise" from the deal's critics. But he said he expects regulators to approve it by the end of the year.

"You've got two strong companies, well-managed," he said. "They're going to get this deal approved."

Jaret Seiberg, a Washington, D.C., bank analyst with Cowen and Company, wrote in a report Monday that he also expects regulators to OK the merger. But Warren's and Waters' criticisms are likely to increase, which will make it tough for other Democrats to support it, he said.

Waters will probably hold at least one hearing to the deal, Seiberg wrote, adding that it's not clear whether the Senate Banking Committee will hold one. That body is chaired by Idaho Republican Mike Crapo.

In expressing concerns about the merger, Waters and Warren said it reflects a relaxing of federal banking regulations under President Donald Trump's administration.

In her letter to the Fed chairman, Warren cited a law Trump signed last year, saying that it reduced federal oversight of banks with $50 billion to $250 billion in assets, a group that includes BB&T(BBT) and SunTrust.

"Industry analysts correctly predicted that these changes will result in an increase in (merger and acquisition) activity among banks," Warren wrote. A rise in bank mergers has the potential to hurt consumer choice and competition, she wrote.

Wild card?

In 2017, the Federal Reserve issued an order against BB&T(BBT) that remains in effect, and industry experts say the impact of that action on the merger remains unknown.

In its order, the Fed told BB&T(BBT) it needed to fix deficiencies in how it complies with federal anti-money laundering law. In issuing the order, the Fed said it had found "significant" deficiencies at BB&T(BBT) during a Fed inspection of the bank.

Similar issues helped create years-long delays in approvals for a deal announced in 2012 in which M&T Bank Corp. of New York agreed to buy New Jersey'sHudson City Bancorp. The Fed finally approved the deal in 2015.

Last week, BB&T(BBT) CEO Kelly King said he did not expect the Fed's order to stand in the way of regulators approving the merger. He also noted that BB&T(BBT) has already been released from similar orders with the FDIC and North Carolina Commissioner of Banks.

"We are, we believe, in the very final stages of having that lifted with the Fed," King said. "We have done everything that they have asked us to do. ... I believe we're on the five-yard line, maybe the three-yard line, in terms of this being resolved."

Seiberg, the bank analyst, said in his report that the money laundering issue remains one of the deal's biggest risks.

"There are no indications of trouble in this area," he wrote. "But if the deal takes longer than the rest of 2019, we suspect it will be trouble with a compliance issue like the money laundering rules."

Another key question on analysts' minds is how successful BB&T(BBT) and SunTrust, two large regional banks, will be at integrating their cultures and processes if the deal is approved.

A report Monday from New York-based Moody's Corporation(MCO) said though BB&T(BBT) and SunTrust are both healthy institutions that have been involved in previous mergers, in general the credit-rating agency does not have a favorable view of large U.S. bank acquisitions.

"As seen in recent decades, bank combinations are often the source of significant integration challenges and due diligence missteps do not always become clear until well after the deals are completed."