The iShares U.S. Regional Banks ETF (NYSEArca: IAT), which tracks a basket of large regional banks, was trading higher by nearly 2% in midday trading Thursday on news that BB&T Corp. (NYSE: BBT) is acquiring rival SunTrust Banks Inc. (NYSE: STI) in a deal that will create the sixth-largest U.S. bank.
Though the $66 billion deal is being called a merger of equals, “unTrust shareholders will get 1.295 shares of BB&T for each share they own. They will own about 43 percent of the combined company, while BB&T shareholders will own about 57 percent,” reports USA Today.
The $575.63 million IAT was up 13.70% year-to-date prior to the news of the deal, which is the largest merger among U.S. banks in a decade. IAT tracks the Dow Jones U.S. Select Regional Banks Index.
Entering Thursday, BB&T and SunTrust were IAT’s third- and fourth-largest holdings, respectively, combining for almost 12% of the ETF’s roster.
More On The Deal
“The new bank will hold about $442 billion in assets, $301 billion in loans and $324 billion in deposits, the companies said. The banks expect to save about $1.6 billion in annual net cost synergies by 2022,” according to USA Today.
Rising interest rates historically benefit regional banks, but that has not been the case this year. Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
“The all-stock deal, announced by the companies Thursday and valued at about $66 billion, will create a bank that serves more than 10 million U.S. households. A new name for the bank will be chosen before the deal’s expected closing in the fourth quarter of this year,” reports USA Today.
IAT holds 59 stocks and the ETF’s largest holding is US Bancorp (NYSE: USB) at a weight of 14.56%.
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