In a consolidating industry like banking, it’s either grow or die.
That’s according to someone who knows the model well: BB&T Corp.’s former chief executive officer and chairman John Allison grew its assets from $4.5 billion in 1987 to $152 billion through 180 acquisitions before retiring in 2008.
During his time running the bank, BB&T acquired 69 banks and thrifts, 80 insurance groups and 31 other deals, ranging from real estate to investment groups.
Allison said the important asset that BB&T acquired in all of these deals was not deposits or financial services, but people.
“A lot of mergers should work on paper, but don’t,” Allison said in an interview. “I think the key thing in our merger work was focusing on the human resource. Recognizing that businesses are really about people and human relationships.
“We would get the best people to do the job, be really clear about the culture, about the values trained people really well to do the job and gave people opportunities to do bigger and better things,” he added. “We always valued ourselves every year against how we said we would do for up to 10 years, then it’s too long of a history to try to follow.”
Now, Allison’s former bank is on the cusp of its biggest deal, its merger of equals with SunTrust Banks Inc. announced in February.
Merger of equals in 1990s
Allison recalled a similar deal he oversaw in his tenure: A merger of equals with Southern National Bank, then based in Winston-Salem, with BB&T.
“In the Southern National case,” he says of the 1995 merger that resulted in BB&T’s relocation from Wilson to Winston-Salem, “there’s no question it was necessary to survive. In this case — in terms of survival — it’s a harder thing for me to judge as the industry’s consolidation has slowed down. In terms of prospering? It’s necessary.”
The combination of SunTrust and BB&T will create the sixth-largest bank in the United States at $442 billion. The new bank will have an entirely new name — yet to be decided on, the moniker is expected in late 2019 — and operate out of a relocated headquarters in Charlotte, neutral turf between SunTrust’s Atlanta base and Winston-Salem.
“As big as BB&T’s going to be,” Allison said, “it’s competing against much bigger institutions and the technology is changing very rapidly. In order to prosper, you’ve got to have a very efficient operation.
“In the SunTrust-BB&T merger: They’re whopping economies in terms of overlap in branches and overlap in operations, so there’s a lot of cost savings, and this creates opportunity out of those cost savings to invest in technology — which is driving the industry, and is a moving target,” he added.
Deal-derived cost savings
In a February letter to BB&T shareholders, current chairman and CEO Kelly King — Allison’s successor — explained that the bank must disrupt itself, focusing on technology in order to continue thriving.
To fund the tech investment necessary to compete and in addition to the cost savings derived from the merger, BB&T has improved the efficiency of its branch, office and electricity footprint in the past three years.
“I think the SunTrust-BB&T merger is a really good economic idea,” said Allison, “something that should’ve been done. When I was CEO, we pursued SunTrust — never could get them, couldn’t work it out over the social issues. I think the economics are very, very positive, and the probability of the combined company performing much better — in that sense, creating more jobs and more opportunity for both the employees and the community — is very high.”
Allison, who started his career at BB&T in 1971, points out that the Southern National deal in 1995 doubled the number of employees in Wilson in the years that followed.
“In a certain sense, it’s even more dramatic than that,” he says of the merger’s positive impact on Wilson. “If BB&T hadn’t have done that merger of equals, we’d have been acquired and whoever acquired us would have gutted Wilson. So, Wilson was actually a big winner.”
“It’s tough, emotionally and psychologically, to lose a headquarters because you do have some of the most talented people leaving the community,” added Allison. “But there’s a tradeoff there: Our payroll in the area grew way faster than inflation in Wilson after the merger and was dramatically higher than it would have been had we been acquired. And I think the same thing will happen in Winston.”
The deal, however, is not without risk.
“This is a very large merger, and there are lots of objective factors — some risk that the execution won’t be as good as it should be. I think the risk is small because both BB&T and SunTrust have been through a lot of mergers and they kind of understand how the process works.”
The sense of equity in a deal like this, Allison said, is critical.
King’s February shareholder letter explains how that equity will materialize in the merged bank’s leadership: The executive management team will consist of seven leaders from SunTrust, and seven from BB&T. The board of directors will be evenly split as well.
SunTrust CEO William Rogers will serve as BB&T’s president and chief operating officer until September 2021, after which he will take over as BB&T’s CEO.
Leadership development and BB&T
Then a focus in Allison’s tenure, leadership training remains integral to BB&T’s culture. A client of a psychological leadership development program since the 1980s, BB&T purchased the group Farr Associates under Allison’s watch in 1994 and developed a leadership training program itself—used to train employees and visiting organizations.
BB&T’s Leadership Institute recently opened a 58,000-square-foot, $34 million retreat in Greensboro to instruct organizations’ leaders on management principles and best practices.
In his book on leadership fundamentals, “The Leadership Crisis and the Free Market Cure: Why the Future of Business Depends on the Return to Life, Liberty and the Pursuit of Happiness,” Allison writes that individuals must advocate for themselves and engage in rational behaviors that follow one’s self-interest and long-term happiness. Altruistic leadership may appeal emotionally as necessary in the short term, but cannot function logically thereafter.
“If you don’t understand the principles that make a free society work,” Allison said, “the need for innovation, creativity—that freedom is essential to do that. That to do something and be successful, you have to keep the product of your labor or else you can’t reinvest; you can’t grow a business. I saw lots of small businesses grow to be bigger businesses, and the owner takes maybe a little bit but 90 percent or more they would reinvest and that’s how the business grew.”
Libertarian mindset
For Allison, a vocal libertarian and champion of banking deregulation who appears regularly on Fox Business, such values allow individuals and organizations to achieve success in the long term.
His contention is that, following this model and encouraging free market capitalism, the United States was able to produce an unrivaled quality of life, but altruistic agreements and socialistic programs risk this progress going forward.
“Liberty sells,” Allison says. “Freedom is a good thing. I think that a lot of people that say they are socialists have no idea what socialism is. It’s kind of bizarre, if you don’t look around.”
Following a principled approach in lending practices, Allison asserts in his 2012 book, “The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope,” allowed BB&T to remain profitable throughout the financial crisis.
An example Allison cites is that BB&T refused to offer the pick-a-payment mortgage plans that helped fuel the capital misallocation in the housing market — despite the short-term profitability of such payment schedules as land prices climbed. To Allison’s chagrin, even companies that lost money on these lending models received bailout money after the crisis.
He contends that money isn’t everything: Rather, it ought to be viewed as a measure of economic productivity. Having lent money to people across the span of his career, Allison explains the best business people aren’t exclusively seeking it.
“What I’ve found in most successful entrepreneurs,” Allison said, “is they certainly wanted to make money, but they also wanted to do something: They had a passion for doing something. And so, making money was, in a sense, important—but secondary.
“It was, ‘Boy, I want to build a better restaurant chain,’ or ‘I want to build a better shoe chain;’ ‘I want to build something.’ I’m a builder, and I like building. And I like growing,” he added.”Those are the people that are the most successful over the long term.”
