As BB&T and SunTrust move forward with plans to merge and base their new bank in Charlotte, executives faced strong scrutiny from lawmakers in a nearly three-hour Congressional hearing Wednesday.
During the session of the U.S. House Committee on Financial Services, SunTrust’s CEO William Rogers Jr. and BB&T Chairman and CEO Kelly King responded to criticism from lawmakers over the planned bank’s size, potential branch closures and previous lending practices.
U.S. Rep. Maxine Waters, a California Democrat and the committee chair, raised concerns that the $66 billion deal was “too big to manage.”
She said the merger would make the new bank larger than Countrywide and Washington Mutual were. Both banks failed during the financial crisis. “I’m concerned that if this merger goes forward it will create another mega-bank that is too big to manage and poses a risk to our financial system,” Waters said.
If approved by regulators, the combined bank, to be called Truist, will be the largest U.S. bank merger since the 2008 financial crisis.
Rogers addressed Waters’ concerns that the bank would be too big to fail.
“With this merger, bigger doesn’t mean riskier,” he said.
But several Democrats said that regulators don’t scrutinize mergers enough. “The regulators seem to be acting only as rubber stamps by simply approving every merger that comes before them,” said Rep. Carolyn Maloney, D-NY.
The banks have said they expect to receive regulatory approvals by the end of the year.
The deal would create the sixth-largest bank in the U.S. by assets and deposits. The new Charlotte-based bank is anticipated to have approximately $442 billion in assets and $324 billion in deposits.
The banks have said the Charlotte headquarters will house around 2,000 employees. But executives have also said that they plan to save around $1.6 billion by merging, including by eliminating jobs and overlapping branches.
Regulations in question
Republicans at the hearing generally seemed supportive of the merger, and argued that the high cost of complying with regulations like Dodd-Frank has caused banks like BB&T and SunTrust to consolidate.
“Dodd-Frank created a world in which size equals survival,” said Rep. Ann Wagner, R-Mo.
In his opening remarks, the committee’s ranking member, U.S. Rep. Patrick McHenry, R- N.C., said Democrats, who supported increased regulations in the aftermath of the financial crisis, were having “buyer’s remorse.”
“It is my colleagues on the other side of the aisle that have made the largest banks larger while suffocating smaller institutions,” he said.
King said it has become increasingly challenging for banks like BB&T and SunTrust to compete with larger institutions. He said the merger will allow the banks to compete, and to make a greater investment in technology for customers.
“We are competing against very large Wall Street firms and they have the scale and capacity, particularly in technology,” he said.
The banks plan to put an Innovation and Technology Center in Charlotte. And last month, BB&T and SunTrust announced that Hearst Tower in uptown would be the corporate headquarters for the new bank.
Impact on communities
At an April meeting in Charlotte, some members of the public expressed concerns that the deal could result in fewer branches and decreased lending to small businesses and minority and low-income communities.
In what the banks say was a direct result of the community meetings, they unveiled a $60 billion spending plan last week for loans and investments in low- to moderate-income communities in states where they operate.
“We understand that there remains a great deal of work to be done when it comes to the inequities that still exist in our communities and across the country,” King said in prepared remarks to the committee.
Waters said in her remarks that while the spending plan is a “positive step,” it is unclear whether it’s a meaningful increase from the lending and investments the banks are already making.
“Ultimately, it’s not enough to address the serious concerns that I and others have about this proposed merger,” she said.
King also announced in his remarks that the combined bank plans to establish partnerships with Historically Black Colleges and Universities across the country.
In response to questions from Rep. Alma Adams, an N.C. Democrat whose district includes Charlotte, King said he hopes to help provide jobs for graduates from the schools through the HBCU partnership. Adams is working with the banks on the HBCU program.
King also said the combined bank will have a greater capacity to serve rural areas.
“We grew up as a farm bank, and for almost my entire career we served almost predominantly rural areas,” King said. “We will continue to be committed to rural areas.”
Democrats also expressed concerns on how the merger could impact community banks and credit unions. Rep. Stephen Lynch, D-Mass., said smaller banks don’t have the resources to invest in mobile banking and other technology.
“I worry about those communities when those banks go away,” he said.
Several lawmakers called into question the banks’ previous lending practices.
In 2012, the mortgage subsidiary of SunTrust agreed to pay $21 million in a settlement over charges from the U.S. Department of Justice that it discriminated against African-American and Hispanic borrowers between 2005 and 2009. The agency said the bank charged higher fees and interest rates to more than 20,000 minority borrowers.
Rep. Rashida Tlaib, D-Mich., asked the executives how they will ensure that the new bank won’t engage in similar practices.
Rogers said SunTrust looks at every loan to ensure they do not discriminate. “That is a chapter that we’re not proud of at our company and one that we do not intend to repeat,” he said.
BB&T and SunTrust were also among the banks that faced lawsuits over mortgage abuses in the wake of the financial crisis, which lawmakers brought up in the hearing.
In 2014, SunTrust agreed to pay nearly $1 billion for originating and underwriting mortgage loans insured by the Federal Housing Administration that did not meet requirements. BB&T paid a similar penalty two years later.
“When it matters the most for thousands of struggling homeowners, SunTrust did not do its job for offering sustainable loan modification,” Waters said. “Will you dedicate more resources to loan modification options?”
“No consumer should ever be taken advantage of,” Rogers said. “We have committed already to increase our resources in the compliance area and in the loan modification area, and we will continue to do that as part of Truist.”
Branch closings concerns
The executives said they could not disclose how many branches would close following the merger. Citing news reports, Waters said that the two banks have 740 branches that are within 2 miles of another branch.
In considering closures, King said in his prepared remarks that the combined company will consider the impact on low-to-moderate income, minority and rural communities, in addition to the business justification.
The merged bank seeks to open at least 15 new branches in low-to-moderate-income and/or majority-minority communities to help increase access to financial services, he said.