Confused by Recent Bank Mergers of Equals? Look at Truist to Better Understand
The market has met several noteworthy mergers of equals (MOEs) in the banking industry with skepticism this year, questioning whether the deals will really provide more value long-term than each of the banks could have created on their own. An MOE in banking is when two institutions, usually around the same size in terms of assets, merge with the intention of building a new bank that really takes large parts of each institution and their various business lines. A traditional acquisition is more about one bank buying a smaller bank to take advantage of costs saves and maybe a new revenue opportunity or two.
In April, BancorpSouth and Cadence Bancorporation said they would partner to create a $44 billion asset bank in the South. About a week later, Webster Financial and Sterling Bancorp said they would join hands in another MOE that would create a $63 billion asset bank in the Northeast. Both BancorpSouth and Webster, the technical buyers in the deal, have seen their stock prices slide since announcing the MOEs.
It's certainly fair for investors to question the game-changing deals, because these banks are more or less altering their strategies fairly significantly, so they may see it as a pretty big gamble. But to understand how these MOEs can work, let's look at Truist Financial (NYSE: TFC), the product of one of the largest-ever MOEs, and see if we can glean some insights on these complex deals.
Source Fool.com
