DBRS Confirms BB&T Corp Senior Debt at A (high) on Acquisition Announcement; Maintains Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings of BB&T Corporation (BB&T or the Company), including its Issuer & Senior Debt rating of A (high) and Short-Term Instruments rating of R-1 (low). The trend on all ratings remains Stable. The rating action follows the announcement of the Company’s agreement to acquire Susquehanna Bancshares, Inc. (Susquehanna) in a stock and cash transaction valued at approximately $2.5 billion. The transaction is expected to close in 2H15, subject to regulatory and Susquehanna shareholders’ approval.

DBRS’s confirmation is based on BB&T’s historic success in strengthening its franchise through selective acquisitions, including its most recent completed acquisition, BankAtlantic, in 2012. Overall, the transaction will deepen BB&T’s presence in Maryland and West Virginia, while expanding its reach into the contiguous states of Pennsylvania and New Jersey. The Company expects the deal to be immediately accretive to earnings, and to exceed its IRR hurdle. Positively, DBRS expects the realization of revenue synergies from the deal, as BB&T provides its broad-based product offering to Susquehanna’s customers. DBRS considers BB&T’s expected cost saves of about 32% over a two-year period as achievable. Overall, the Company expects approximately $250 million in pre-tax merger integration related charges. The Stable trend underscores DBRS’s expectation that the Susquehanna acquisition will be integrated without significant disruption or difficulties.

DBRS notes that integration risk will be somewhat elevated, especially given that BB&T will be integrating three transactions, including its recently announced agreements to acquire 41 Citibank branches, and The Bank of Kentucky. Nonetheless, moderating DBRS’s concerns is BB&T’s successful track record of integrating numerous bank acquisitions, as well as the modest overall size of these transactions. Specifically, the Susquehanna and The Bank of Kentucky acquisitions, in aggregate, represent approximately 11% of BB&T’s total assets. Moreover, BB&T has stated that its near term priority will be to focus on the successful closing and integration of announced acquisitions. Nonetheless, DBRS would view any additional material announced acquisitions negatively until BB&T integrates the transactions currently on its plate.

Susquehanna is a financial services holding company with $18.6 billion in assets and 245 banking offices located throughout the mid-Atlantic region, including Pennsylvania, Maryland, New Jersey and West Virginia. Susquehanna operates a community banking model similar to BB&T’s. Fairly typical of most mid-sized community banks, Susquehanna has sizable levels of commercial real estate and residential real estate loans on its balance sheet. However, Susquehanna’s asset quality is sound and any future deterioration will be cushioned by the 4.5% credit mark taken by BB&T, which DBRS sees as prudent.

The acquisition will have a moderate impact on BB&T’s sound capital profile. Specifically, BB&T projects approximately 50 bps to 60 bps of Tier 1 Common dilution at the time of the close. As of September 30, 2014, BB&T’s Tier 1 Common Ratio was 10.5%.

BB&T Corporation, a bank holding company headquartered in Winston-Salem, North Carolina, reported $187 billion in assets at September 30, 2014.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (January 2014), DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013), and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013). These can be found at: http://www.dbrs.com/about/methodologies

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Mark Nolan
Rating Committee Chair: Roger Lister
Initial Rating Date: 19 December 2005
Most Recent Rating Update: 9 September 2014

For additional information on this rating, please refer to the linking document under Related Research.