Coronavirus isn’t slowing Truist integration … so far

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Truist Financial in Charlotte, N.C., hasn’t given up on meeting its post-merger cost-cutting targets amid the pandemic — at least not yet.

The $506 billion-asset company, formed by December’s merger of BB&T and SunTrust Banks, had vowed to eliminate $1.6 billion in annual expenses by 2022. About $480 million of those cuts are supposed to happen this year.

While Truist executives said Monday that the bank remains on track for now, they warned the timetable could change depending on how long the economic shock from the coronavirus lasts.

Truist can still meet its 2020 goal if there is a sharp recovery, but “it will take a little bit longer” if the economy is slow to rebound, Chairman and CEO Kelly King said during the company’s earnings call.

“We are on track so far this quarter,” Daryl Bible, Truist’s chief financial officer, added. “We were trying to have some buffer and be ahead of that. It doesn't get any easier … to be honest with you.”

Truist Chairman and CEO Kelly King
“I know everybody wants to know what's going to happen,” Truist Chairman and CEO Kelly King said in response to questions about the prospects for the economy. “I do, too, but the truth is we just don't know.

Truist’s ability to move forward with the integration and cost-cutting will be heavily scrutinized by other banks’ executives, analysts and investors, too. A number of high-profile deals have been announced in recent months, including South State-CenterState and First Horizon-Iberiabank, and Truist’s experience could foreshadow what those other banks will face.

King warned on Monday that some of the cost savings may be delayed due to challenges of having people working remotely.

“There may be some things that we’re not able to do as quickly as we had anticipated but our people are studying this daily,” King said. “As of today, they have not discovered any material issues that will dramatically slow down our progression in terms of integration.”

Truist outlined some areas where it can cut costs regardless of the pandemic. It is on pace to eliminate about $100 million in annual third-party vendor expenses this year. The company has also cut $66 million in real estate costs.

The work-from-home dynamic — about 60% of Truist’s 58,000 employees are working remotely — could lead to permanent changes.

“We have to really evaluate the impact of that after it's all said and done, but that could be an opportunity” for more cost savings, Bible said.

The pandemic led to some one-time expenses after Truist approved a $1,200 bonus for employees earning less than $100,000 and increased pay for on-site workers.

King said it was important to send a message to employees that the COVID-19 response was a higher priority than the cost-savings target.

“Those things our teammates really appreciate,” King said. “So they see that … even if there's some sacrifice in terms of short-term profitability, we're going to take care of our teammates so they can feel safe and secure. Those memories will be here for decades.”

Truist executives expressed confidence that those efforts, along with the ongoing challenges posed by the outbreak, accelerated the cultural integration of the BB&T and SunTrust teams.

King pointed to the fact that the company had the second-highest volume of Paycheck Protection Loans, granting 32,000 loans totaling $10 billion approved by the Small Business Administration. JPMorgan Chase says it secured 27,300 approvals for $14.1 billion. (The SBA issued a ranking of lenders by volume, but it left it up to them whether to disclose exact figures.)

“Everybody's got something to lean forward on,” King said. “They're all speaking the same language and operating from the same playbook.”

Still, big tests remain for Truist’s staff, and hitting cost-cutting goals will hinge on how long the pandemic lasts.

The company in January had tempered its near-term forecast for expense cuts, lowering its 2020 goal from $800 million to $480 million. The company said at that time that the lower guidance reflected its promise to keep all branches open for at least a year after the deal’s completion.

And Truist, like other banks, is limited in its ability to make reliable long-term projections.

“I know everybody wants to know what's going to happen,” King said during Monday’s call. “I do, too, but the truth is we just don't know. … The good news is going into this, the economy was very strong. The bad news is small businesses will really struggle to recover from this.”

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M&A Expense management Coronavirus Earnings Truist Financial