Truist won't be too big to fail: BB&T's Kelly King

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Kelly King has a message for lawmakers: Truist Financial will not be too big to fail.

Ahead of a House Financial Services Committee hearing next week titled "The Next Megabank?" to review the proposed BB&T-SunTrust Banks merger, King, BB&T's chairman and CEO, pushed back against the notion. He argued that the combined company will have about $424 billion in assets, which is only about 20% the size of the largest banks. Also, Truist will have less than 2% of national deposit market share.

“They’re concerned that we’re … creating another too big to fail” institution, he said during a Thursday morning conference call to discuss the Winston-Salem, N.C., company’s second-quarter earnings. “We will be saying we’re not a megabank.”

“We will not be creating systemic risk,” King said. “In fact, we will be reducing systemic risk.”

BB&T said the North Carolina banking commissioner approved the deal on July 10; the companies still need OKs from shareholders and federal regulators. King reiterated that the two companies expect the deal to close in the late third quarter or early fourth quarter. However, Morgan Stanley analyst Betsy Graseck asked if they would delay the closing if the Federal Reserve has not finalized a new rule on tailoring regulatory requirements to a firm’s specific risks.

BB&T and SunTrust would “absolutely not” delay the closing if the tailoring proposal is still unresolved, King said. Truist can adjust its capital levels after the deal is consummated if the tailoring rule stipulates new requirements, Chief Financial Officer Daryl Bible said during the call.

Mike Mayo, an analyst at Wells Fargo Securities, wondered why the House panel is holding the hearing in the first place.

“I don't recall a hearing like this ever before in banking, simply a stand-alone hearing,” Mayo said during the conference call. He questioned "having this hearing when the Federal Reserve has such a comprehensive process” to review mergers.

“You’re asking me that question?” King said, to laughter from the call’s participants. His guess, he said, was, “It’s the first big merger since the recession.”

Lawmakers also want to ask about plans for job cuts and branch closings, King said, something that the companies have already addressed.

“We’re already committed that our ... associates will not lose their jobs on either side,” King said. “I think they just view this as an opportunity to talk about the industry. I think it will be a positive. I kind of view it as four or five hours of free advertising.”

Other analysts pointed out to King that rival banks are salivating at the thought of nabbing BB&T and SunTrust customers during the merger transition period. First Horizon National in Memphis, Tenn., which hasn’t been shy about its plans to raid the new company’s clients, said this week it will use Amazon’s Alexa voice assistant as part of its competition with larger, high-tech-focused banks.

King didn’t seem too concerned about client attrition.

“I hear the competitors saying what they’re going to do, but that’s just rhetoric and irrelevant,” he said. “We’re not going to sit back and, you know, let local banks take our business.”

As for BB&T’s second-quarter results, the company’s net income rose 9% year over year to $842 million. Earnings per share of $1.09 were 2 cents better than the mean estimate of analysts compiled by FactSet Research Systems.

Also on Thursday, SunTrust reported second-quarter net income fell 5% to $663 million. Merger-related expenses and higher loan-loss provisions contributed to the decline. Still, earnings per share of $1.48 were 4 cents higher than the mean estimate of analysts compiled by FactSet Research Systems. SunTrust executives were scheduled to hold their quarterly call with analysts late Thursday morning.

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TBTF Capital requirements Earnings National banks Regional banks M&A BB&T SunTrust Truist Financial Federal Reserve House Financial Services Committee