1 month ago
Stock Market

MarketPulse: Regional Banks Rally as SunTrust, BB&T Seal Major Merger

Investing.com - Suntrust Banks soared Thursday after agreeing to be bought by BB&T in a deal valued at about $66

Investing.com - Suntrust Banks soared Thursday after agreeing to be bought by BB&T in a deal valued at about $66 billion, creating the sixth-largest U.S. bank.

Other regional banks, including Citizens Financial (NYSE:CFG), up 2.8%, Cincinnati Financial (NASDAQ:CINF), up 3.1%, and Comerica (NYSE:CMA), up 5.2%, rallied on the news, keeping lid on losses in financials.

The S&P 500 Financial sector was down 1.3% for the day.

Under the terms of the deal, BB&T (NYSE:BBT) shareholders will own about 57% of the newly-formed company while SunTrust Banks (NYSE:STI) shareholders will own the remaining 43%.

The transaction is expected to close in the fourth quarter and generate $1.6 billion in cost synergies by 2022 for the combined bank, according to the companies.

Both stocks have been trading at heavy discounts to historical price-to-earnings averages since November, with the market concerned about the lack of meaningful catalysts. But the merger opens the door to lower costs and higher profits, analysts said.

"This merger shows how banks can reduce expenses and increase profitability in what many consider to be a lackluster operating environment," Piper Jaffrary said.

The deal, the largest big bank deal since the financial crisis, cranked up the rumor mill with many speculating the decade-long slumber in merger activity within the regional banking sector may be coming to an end.

"We expect the market to cheer the news of the merger and all regional bank stocks to rally as we sort out who might be next," Piper Jaffray added.