Eric Compton: M&A has been an ever-present topic within the banking space. The U.S. still has one of the most fragmented banking systems, and successful M&A tends to bring cost efficiencies and savings into the system. With the SunTrust/BB&T merger-of-equals announcement back in February, M&A speculation has ramped up to fresh highs.
While we agree that bank M&A makes more sense than ever given the increasing importance of size, scale, and scope, we think the list of potential partners among the large- and midsize regionals is becoming ever sparser. The conditions behind the BB&T and SunTrust merger were uniquely conducive for M&A by our analysis, and we do not see any partners among our current coverage list that make quite as much sense as BB&T combining with SunTrust. Therefore, we are more dour than some on the potential for future deals between larger banks. That said, we still see some potential tie-ups that could make sense. The key for successful M&A, in our view, remains the ability to have high cost savings. This allows the two combining franchises to operate better together than they would separately, and this is a primary creator of value. Cost savings are directly related to branch footprint overlap.