Dividends and BB&T to buy Sun Trust Bank

Two of the largest regional banks in the south have set a process to merge and create a larger bank. BB&T offered 1.295 shares for each SunTrust Bank share according to the press release. BB&T is based in Winston-Salem, North Carolina while SunTrust is based in Atlanta, Georgia. The combined bank which is seen as a merger of equals will become the 6th largest bank in the US with over 10 million customers who have $442 billion in assets. $301 billion in loans and $324 billion in deposits.

The companies believe the larger scale will allow diversification and greater fees to create value for the combined entity. A new name will be chosen if the merger goes through by the close of the 4th quarter. At the moment the succession is equally split between the banks.

The merger is the biggest bank merger since 2008 bank crisis when the government would not allow mergers. One of President Trump’s platform is to change regulations from the previous administration and allowing mergers of banks is one of the changes.

In all industries, the government has regulations to protect or limit some of the losses which executives will try to do for the sake of greater profits and market share. All industries go through the cycle and at the low point, one wonders who was looking for the average depositor? Regulations are introduced, the number of merges fall and Wall Street looks to another industry to merge. The cycle moves and eventually possible regulations happen again.

Similar to other industries banking has changed and the lowest method to deliver services is through apps on your smartphone or laptop. They are less expensive that a building and having tellers do it, although most people still will go into a branch once in a while. The teller does the deposit and the money is in your account at the moment, at the ATM it is the next day.

Linking to dividend paying stocks, companies that consistently earn money are vulnerable to mergers, because management wish to scale up. Sometimes that is good, sometimes mergers do not work, we all know the answer afterwards. When mergers happen as an investor you have to revisit why you own the stock.

There are more questions than answers, till the next time – to raising questions.

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