BB&T More Eager Than Rivals to Return to M&A Game

BB&T could soon be ready to start buying banks again at a time when other traditional buyers are more gun-shy.

Though it is widely accepted that the country's largest banks are restrained by regulators from getting any larger, Kelly King, chief executive of the $183 billion-asset BB&T (BBT), said Thursday that he thinks his company could be ready to strike as early as next year. Still, it wouldn't necessarily be easy.

Regulators are "never going to be really, really easy in this environment, but I think they will be more comfortable," King said on a conference call with analysts. "I certainly expect that we would be in a position to consider acquisitions as we head into '14. …I would be surprised if you don't begin to see acquisitions as we head through '14."

His remarks were relatively bullish compared with the M&A outlooks of other CEOs this earning season.

U.S. Bancorp's Richard Davis described his $353 billion-asset company's interest in buying a bank as "dormant" and said that it hasn't been hearing from potential sellers. Bill Demchak at PNC Financial Services Group (PNC) flatly denied speculation that it is interested in buying Citizens Financial Group in Providence, R.I.

Others showed more interest in M&A but said prospects are weak. Associated Banc-Corp's (ASBC) Chief Executive Philip Flynn said Thursday that his $24 billion-asset company is looking for branch deals, or whole banks with significant overlap in its markets so that it can be sure of significant cost savings. However, nothing has materialized, he said.

Executives of First Horizon National (FHN) seem interested in M&A, but said Friday that the environment is still slow.

BB&T last bought a bank a year ago, when it acquired BankAtlantic in Florida.

King said dealmaking among banks in BB&T's asset class has also been on hold because bankers have been waiting to see what regulatory capital guidelines would look like and how other regulations would be implemented.

"I don't think many acquirers are interested in doing acquisitions today because there are so many uncertainties," he said.

BB&T's desire for deals was likely iced this year when the Federal Reserve rejected its capital plan. The process is confidential so the specifics are unclear, but the company has said the rejection was not based on the amount of capital it has. Analysts generally believe that the reason for the rejection was the company's disclosure in early March that it was re-evaluating its process for calculating risk-weighted assets. The company resubmitted its plan last month and expects to hear back from the Fed in August.

Followers of BB&T say that if King has a rosy view on M&A for 2014, something will likely happen.

"As long as I've known him, he is serious about everything he says, so if he is talking about M&A, it is on his mind," says Chris Marinac, an analyst at FIG Partners in Atlanta. "It will have to be priced right, but there are plenty of opportunities. Does the resubmission clear the air for them to do something next year? I think it should."

Kevin Fitzsimmons, an analyst at Sandler O'Neill who asked King the question that sparked the M&A talk, said in an interview that he viewed the remarks as more of a working assumption than a pledge. Still, he said BB&T would likely incorporate potential acquisitions into the capital plan it submits to regulators next year, along with its plans for dividend increases and buybacks.

"Is it a 100% certainty that they will buy something? No, but it is reasonable," Fitzsimmons says. "There are underlying things that are not in his control, but I don't think the regulators are permanently against M&A."

The Winston-Salem, N.C., company on Thursday reported earnings of $547 million, up 6.9% from a year earlier. Earnings per-share of 77 cents were three cents better than the estimates of analysts polled by Bloomberg.

The company's results included $1.5 billion in expenses, up 4.9% from a year earlier and up 5.8% from the first quarter. The company attributed the increase to a $27 million restructuring charge and $35 million in systems and special project costs.

King was prepared for questions about the increase costs in the current expense-obsessed environment.

"Overall it was a very solid quarter. Especially given the kind of sluggish economy we have," King said at the beginning of the call. "Frankly, everything looks good except expenses."

Some of its credit-quality numbers were surprisingly strong. Its provision for loan losses was $168 million, down 38% from the first quarter. Meanwhile, nonperforming assets totaled $1.28 billion, down nearly 10% from the first quarter. King said that nonperforming assets were at their lowest point in five years.

The company's average loans grew $1.1 billion in the quarter, or 3.8% annually, to $114.3 billion.