BB&T-SunTrust Tie-Up Brings Tech Budgets Into Focus -- WSJ
13 February 2019 - 7:02PM
Dow Jones News
By Kristin Broughton
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 13, 2019).
Behind one of the biggest bank deals in a decade is a
recognition that BB&T Corp. and SunTrust Banks Inc., both
dominant banks in the South, would be more competitive with a
bigger tech budget.
The all-stock, $28.2 billion deal, announced Thursday, is
expected to help the rivals close a widening digital gap that is
fueling one of the biggest threats to their business: losing
relevance among younger customers.
The deal, which would create the sixth-largest regional bank and
a financial powerhouse in the South, underscores the urgency facing
regional banks to invest heavily in client-facing and back-end
technology to continue attracting consumer and corporate
customers.
"What's the largest strategic risk facing the banking industry?
It's technology," said Todd Baker, a senior fellow at the Richard
Paul Richman Center for Business, Law and Public Policy at Columbia
University. "How are they going to be more nimble and
effective?"
The transaction -- the biggest bank deal since the financial
crisis -- will allow the former rivals to develop better technology
together than they could on their own. They plan to reinvest $1.6
billion in projected cost savings from the merger into technology
and innovation.
The companies also plan to create an innovation and technology
center at the merged entity's new headquarters in Charlotte, N.C.,
to drive digital transformation, including the adoption of
automation and an improved customer experience online.
"This is the early innings of an enormous transformation of all
of financial services," Mr. Baker said.
In recent years, big banks such as JPMorgan Chase & Co. and
Bank of America Corp. have invested heavily in developing
consumer-facing technology such as artificial intelligence-powered
chatbots and digital investing apps. In the process, they also have
added deposits at a faster clip than smaller peers.
To understand the challenges regional banks face, consider:
BB&T disclosed in November that its technology budget for 2018
was $1.1 billion. BofA, meanwhile, disclosed a total technology
budget of about $10 billion.
"The world is changing and we have to change," BB&T Chief
Executive Kelly King said in an interview with The Wall Street
Journal.
The deal also presents an opportunity for cost savings. During a
conference call with analysts, executives from both companies said
that some of the cuts could come from redundant systems and branch
closures. Together, the companies have roughly 740 locations within
two miles of each other, according to a presentation.
Those savings could bolster the tech budget. "One of the most
powerful benefits of this merger," BB&T Chief Financial Officer
Daryl Bible said during the call, "is that we are able to take
significant costs out of redundant areas and reinvest them into
innovation, technology and our talent, ensuring we are better
positioned for the future."
Scott Case, currently the chief information officer at SunTrust,
is expected to lead technology at the combined company, while Donta
Wilson, chief digital officer at BB&T, would lead the company's
digital transformation.
-- Rachel Louise Ensign and Allison Prang contributed to this
article.
Write to Kristin Broughton at Kristin.Broughton@wsj.com
(END) Dow Jones Newswires
February 13, 2019 02:47 ET (07:47 GMT)
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