DBRS Confirms BB&T Corporation at A (high); Trend Remains Positive Following Merger Announcement

DBRS, Inc. (DBRS) confirmed the ratings of BB&T Corporation (BB&T or the Company), including the Company’s Long-Term Issuer Rating of A (high). The trend on all ratings remains Positive. The ratings action follows the merger of equals announcement by BB&T and SunTrust Banks, Inc. (SunTrust) in an all-stock transaction valued at approximately $66 billion. The deal is expected to close in 4Q19, subject to regulatory and shareholder approvals.

KEY RATING CONSIDERATIONS
The confirmation of BB&T’s ratings reflects DBRS’s view that the combination is a compelling strategic fit, with attractive prospects. Specifically, the transaction will significantly enhance the combined entity’s scale and further diversify its business mix, loan portfolio and fee income sources from what is already a very strong franchise on a standalone basis. Additionally, BB&T expects that the combination will produce best-in-class profitability and efficiency ratios (estimated pro-forma ROATCE of 22% and Efficiency ratio of 51%), while maintaining strong balance sheet fundamentals and a conservative risk profile.

While DBRS is wary of the substantial integration risk associated with such a large transaction, particularly as it relates to culture and the shared senior management structure, these concerns are mitigated when considering BB&T’s proven track record of strengthening its franchise through selective mergers and acquisitions and successfully integrating them. Further, both organizations have complementary business models and geographies and are led by long-tenured management teams that will be fully engaged with the integration process.

RATING DRIVERS
If BB&T successfully integrates with SunTrust and delivers on its transaction assumptions, the ratings could be upgraded. Conversely, failure to sustain the Company’s profitability and credit metrics, or if the merger integration is poorly executed, there could be negative rating implications.

RATING RATIONALE
On a pro-forma basis, the combined company will become the sixth largest U.S. bank, with $442 billion in total assets and leading market share positions across an attractive footprint. DBRS expects the combination to provide significant revenue growth and cost savings opportunities, while also allowing the combined entity to leverage its considerable scale to increase investments in technology on par with the largest U.S. banks, ultimately providing a sustainable competitive advantage over smaller regional bank peers.

Importantly, credit fundamentals are expected to remain strong, providing key support to the ratings confirmation and maintenance of the Positive trend. Specifically, the combined company is expected to have a CET1 ratio of between 9.75% to 10.0% at closing, in line with the currently strong levels. Moreover, the funding and liquidity profile will be significantly improved, with a greater reliance on deposit funding and a target LCR ratio of between 115% to 120%. Lastly, asset quality and stress test metrics of the combined entity are expected to be top-tier and DBRS considers the gross loan mark to be conservative at 2% of SunTrust’s loans.

BB&T Corporation, a bank holding company headquartered in Winston-Salem, North Carolina, reported $226 billion in assets at December 31, 2018.

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

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (July 2018) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018), which can be found on our website under 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.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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