BB&T-SunTrust effect at play in First Horizon deal

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First Horizon National’s pending merger with Iberiabank could serve as a blueprint for other large mergers of similar-size banks.

The companies agreed to combine Monday in a deal valued at about $3.9 billion. The merger — the second-biggest bank deal announced this year — will create a $75 billion-asset regional that executives said should have the necessary scale to build a digital platform to compete against deep-pocketed megabanks.

“We as an industry are going through a great deal of transformation,” Bryan Jordan, chairman, president and CEO of the $43.7 billion-asset First Horizon in Memphis, Tenn., said in an interview. “Together, our two banks will be in an even stronger position to make the investments in technology and services to address the future of banking.”

The pitch sounds very familiar to the one offered by BB&T and SunTrust when they announced their megamerger in February. Executives at those companies have repeatedly stated that their deal will allow them to beef up their tech offerings to vie with competitors such as JPMorgan Chase and Bank of America.

BB&T-SunTrust briefly stoked speculation that other large regionals could announce deals. While that didn’t happen, Jordan said smaller regionals, particularly in the Southeast, are likely reviewing their options, adding that his company's deal could spur more activity.

Jordan said he and Daryl Byrd, CEO of the $31.7 billion-asset Iberiabank in Lafayette, La., had discussed how a merger could allow for greater scale and reach before the BB&T-SunTrust deal was announced. The $28 billion megamerger simply affirmed their thinking, he said.

“This very well could get the ball rolling for more of these deals,” said Stephen Scouten, an analyst at Sandler O’Neill.

Investors, concerned about falling interest rates, revenue challenges and a potential economic slowdown, are looking for potential mergers involving banks with anywhere from $15 billion to $150 billion in assets.

“Simply, scale really does matter,” Scouten said. “The more favorable response we see with a deal like First Horizon-Iberia, the more likely more of these regionals are to get together. I’m not saying you’re going to see five more of these deals between now and June. But could it happen? Yes. Should it happen? Probably.”

A merger the size of First Horizon-Iberiabank should meet very little regulatory resistance, Jaret Seiberg, an analyst at Cowen Washington Research Group, wrote in a Monday note to clients.

“We see no obvious obstacles and note that the banks have hired legal counsel that know how to get bank mergers completed,” Seiberg said.

The year’s third-biggest deal — the $3.6 billion merger of Chemical Financial and TCF Financial — was completed just seven months after it was announced. That deal created a regional bank with $47 billion in assets.

BB&T and SunTrust still need approvals from the Justice Department and Federal Reserve nine months after announcing their merger.

First Horizon and Iberiabank both have M&A experience, particularly in recent years.

Iberiabank has bought seven banks since 2014 with a heavy focus on the Miami area.

First Horizon, which largely retrenched to its home state after an expansion effort led by Jordan’s predecessors struggled during the financial crisis, returned to traditional M&A in October 2015 when it bought TrustAtlantic Financial in Raleigh, N.C. It acquired the $10 billion-asset Capital Bank Financial in Charlotte, N.C., for $2.2. billion in November 2017.

Jordan, who will remain First Horizon’s CEO, has been touting the need for tech improvements for some time. He said in an interview last year that investments by big banks and the emergence of fintech would challenge smaller institutions to find ways to use technology and still connect with clients on a personal level.

Technology "gives you a tremendous way to improve services and the flexibility of banking our customers," Jordan said in the January 2018 interview. "But it is very costly and, because it tends to level the field, it is going to require you to figure out how to differentiate your services when you have less contact with the customer."

First Horizon plans to reinvest some of the $170 million in annual costs it cuts into longer-term digital improvements, Jordan said on Monday. He also touted the immediate opportunities tied to combining products, services and expertise.

The lion’s share of First Horizon’s operations are in Tennessee, North Carolina, South Carolina and Florida. Most of Iberiabank’s footprint consists of Louisiana, Texas, Arkansas, Florida and Georgia.

Economic activity across those states is “extremely strong,” Byrd, who will become executive chairman, said in an interview. “This is the lowest unemployment of my career … and our clients are doing really well.”