BB&T Chief Kelly King on M&A, Regulators and Banking's Future

Kelly King, the chairman and chief executive of BB&T in Winston-Salem, N.C., was recently named American Banker's Banker of the Year, an honor that recognized his guidance of the company through the crisis years and his development more recently of a blueprint for large-scale M&A.

King participated in a wide-ranging interview for his Banker of the Year profile, and not all of his remarks made the initial story. Here are his additional, or in some cases extended, thoughts on the future of banking, how to get along with regulators and whether other banks will follow the $209 billion-asset BB&T's lead in M&A.

What do you think the role of banking will be in the future?

KELLY KING: I think it will be substantially similar to how it has been from the beginning. The primary role of banking, which a lot of people don't really understand, is that we help create jobs. Think about it. We take in excess money from people who have savings, we listen to thousands of people and companies that want to use that money to grow businesses, build houses and do other things that are part of the economy. We rationalize and evaluate all of those credit requests and we allocate funds to the ones we approve. By the way, the banking industry gets it right about 99.5% of the time over the long term. That's an important part of what we do and it is what we'll continue to do in the future.

The payments space is an emerging and critical function for our industry. Banks have always been a big part of that space. Historically, it was pretty simple — just cash and checks. Now we know that, going forward, changes in the payments space are pretty dramatic. There are a lot of payments providers that are operating in the shadow system … so one of the questions going forward will involve the role of banks and nonbanks in the payments space. What are the risks of security and control? One of the big concerns we all have today involves cybersecurity. We all have to pay attention to the risks. We all have to be aware of the risks that are prevalent in the transaction of business. Frankly, one of my concerns is to make sure we have equal control measures, whether it is inside or outside the banking system. The public expects us to provide payments that are secure, safe, easy and convenient. I'm quite confident that it will turn out fine, but it is a big question going forward.

What is your view of the M&A environment? BB&T has been active, but will others follow?

We have been very blessed to have been active. We've had several acquisitions over the last 18 months and, knock on wood, they've all gone extremely well. There haven't been as many other folks in that business over the last 18 months for a variety of reasons but I do believe that, going forward, we'll see more mergers.

There are still about 6,000 banks in the U.S. and, given the economics of banking today, that's probably too many. So I think you'll continue to see a rationalization of the banking system. There will always be larger, midsize and smaller ones, but there will probably just be less of them. I think that over the next two, three, five years, you are likely to see an increase in the level of acquisition activity because it is a challenging environment out there and the profitability of all banks is being challenged. That tends to promote a lot of consolidation. Stay tuned because I think there's a lot more to come.

What does BB&T look for in an acquisition?

When we think about our merger strategy, we first look at the strategic fit. If it makes sense strategically then it is one to be considered. For instance, if a great bank in California called us today we wouldn't be interested. Secondly, is it a good fit culturally? We're just not going to do a deal where it is a cultural misfit. It just doesn't work for BB&T since we're a culturally driven organization.

Third, there's a whole set of economics. We are pretty good at taking institutions that have been challenged. For example, we did Colonial [Bank in Montgomery, Ala.] back in 2009, right in the midst of the financial crisis. And I think we did a good job rationalizing that system and making it a productive part of our company. Most of our acquisitions, I would say, are good companies that need scale and need to be part of a larger operation to be able to optimize their performance.

What's your advice for working with regulators?

My approach to working with regulators is exactly that — working with regulators. I frankly view it as a partnership. They have their job to do, and we have our job to do, but really there is about a 99% overlap. We both want to protect the depositors. They want us to make good loans, and we do, too. There is even convergence when it comes to shareholders. We want to give good returns to shareholders because we have a responsibility to them and we want access to capital in the marketplace. Regulators also want us to have good access to capital. So I view our objectives as being very similar.

I also view my relationship with regulators like I view my relationship with other people that I work with. These folks are human beings. They have a job to do. Some people get mad at the regulators because of the regulations. I tell people that they have to distinguish between regulations and regulators. In many cases, the regulators would change the rules if they could, too. ...

We really try to treat them with respect, and we really try and listen to them. We really want their advice. We don't always like everything they give us but largely I've found that these are professionals who look at a lot of banks across the industry, and when they bring us a recommended change, we listen because the odds are pretty good that it might make sense for us. We learn from them.

We always do what we say. When dealing with regulators, it is very important to be very clear about what you're going to do and then do it. It is very important, particularly in this environment, to raise the level of commitment to regulatory compliance to a very high level. The regulators are getting enormous pressure from the political process, so I have some empathy for them in regard to that.