Greetings, ladies and gentlemen, and welcome to the BB and T SunTrust Merger of Equals Conference Call. As a reminder, this event is being recorded. Your Investor Relations hosts for this call are Mr. Richard Baytosh of Investor Relations for BB and T and Mr. Ankur Vyas of Investor Relations for SunTrust.
I will now turn the call over to Mr. Richard Baytosh. Please go ahead, sir.
Thank you, Vicky. Good morning, everyone. Thank you to all of our listeners for joining us today on such short notice. We are here today to discuss the transformational merger of Eagle between BB and T and SunTrust. Here with me today from Charlotte, North Carolina are Kelly King, Chairman and Chief Executive Officer of BB and T Bill Rogers, Chairman and Chief Executive Officer of SunTrust Daryl Bible, Chief Financial Officer of BB and T and Allison Dukes, Chief Financial Officer of SunTrust.
Also to participate in the Q and A session is Clark Starnes, Chief Risk Officer of BB and T. In addition to today's press release, we've also provided a presentation that covers the topics we plan to address during our call. The press release and presentation are available on the BB and T and SunTrust Investor Relations website. This information can also be found at thepremierfinancialinstitution.com. Before we begin, let me remind you BB and T and SunTrust do not provide public earnings predictions or forecasts.
However, there may be statements made by both companies during the course of this call that express management's intentions, beliefs or expectations. Actual results may differ materially from those contemplated by these forward looking statements. Please refer to the cautionary statements on Page three regarding forward looking information in our presentation and our SEC filings. Please also note that our presentation includes certain non GAAP disclosures and additional information about the merger. Please refer to the appendix of our presentation for the appropriate reconciliations.
The topics we will cover today are shown on Page two of the presentation.
And now I'll turn it over to Kelly.
Thanks, Rich. Good morning, everybody. Thank you very much for joining our call. I'll just tell you, Bill Rogers and I and our entire teams are extraordinarily excited to announce our MOE of our two great companies and building the premier financial institution. As you've heard me say many times over the years, the primary criteria or combinations is that number one, they are good culture fits number two, they strategically make sense and number three, they are economically attractive.
As you've already read and as you will hear us talk about, this combination meets all three of those to the T. And over the years, Bill and I have been in many industry discussions about what's going on in the world. In the last year or so, particularly, we have agreed that the world has really changed. And we talked about the fact that in order to survive in this really quickly changing world, it's important to be willing to change. We talked about disrupt to thrive, and this is it.
This is kind of the ultimate disrupt to thrive. This will be a great combination for our clients, for our associates, for our communities and for our shareholders. One of the main reasons that this is such a positive transaction is because it is highly synergistic. It's because it has a very strong cultural alignment. I'll talk about that a bit more in a moment.
But both of our companies are extremely purpose and mission driven. It combines complementary business models to create a diverse and comprehensive business mix. And we have leading positions in traditional banking, insurance brokerage and a very attractive proposition in capital markets. It delivers the best of both institutions in terms of talent, technology and process. It's also financially compelling.
It produces industry leading financial performance with an efficiency ratio of 51%, best in our peer group, a return on tangible common equity of 22% and tangible book value accretion. It enhances fee income mix and it leverages our model into expanded client base. It maintains, I want to emphasize this, our rigorous risk management culture and our strong capital and liquidity position. It is also very, very compelling because it's transformative. We're focused on relentless pursuit of differentiated client service experience, leveraging our community bank, our wholesale bank and fueled by the incremental capacity for investments in innovation and talent.
Leading with an innovative mindset and embracing the opportunity for disruption is what's going to drive sustainable competitive advantage. We will be the sixth largest U. S. Bank. We will be in some of the most highly attractive markets in this country and therefore in the world.
We believe in this world today that in order to thrive, that you really have to have a high quality proposition. As I said, the world has changed. Quality has been redefined. Quality is today a function of touch combined with technology, which produces trust. This combination allows us to invest substantially in technology, which will enhance our already outstanding levels of trust and confidence, and that will result in a lasting trusting relationship with our clients, which is a winning proposition.
We believe this combination is culturally attractive and strategically and financially attractive. If you're following along in the deck, if you look to Page seven, I just want to mention again that I said Coulter is one. It is one. It drives everything else. These two companies are almost identically alike.
If you look at SunTrust, for example, their mantra, their their cultural mantra is lighting the way to financial well-being. BB and T has also been focused on that substantially in the high schools and in other areas. At BB and T, we say we wanna make the world a better place to live. What way to make the world a better place to live than to light the way to financial well-being with the challenge that so many people in our world have today? Even T has this lighthouse project, our leisure project.
When you combine all this together, this is classically, as Bill and I started out talking in the beginning, two plus two is five. So we're combining two organizations, creating a really strong foundation to create the premier financial institution. Two like minded institutions with strong cultural alignment and a focus forward as a winning proposition. If you turn to Slide eight, just a few comments about some of the financial metrics, which are really exciting. In terms of assets, we'll be I mean, first, in terms of market value, we will be pro form a $76,000,000,000 sixth largest U.
S. Bank assets, $442,000,000,000, sixth largest loans, $3.00 1,000,000,000 deposits, $324,000,000,000 Our efficiency ratio is just incredible. I've dreamed for years of getting into the low 50s. Here we are, 51%, number one in our peer group. Return on tangible equity was very strong, 22%, number one in our peer group.
And number of households, 10,000,000 households. And we'll be number one in the fastest growing footprint amongst our peers. We'll be number two weighted average deposit market share in the top 20 MSAs. We'll be the number one regional bank owned investment bank. We'll be the number two regional bank mortgage originator and servicer.
We'll be the number five global insurance broker and number five in The United States. And we will have $311,000,000,000 in wealth and institutional assets under management. If you turn along to Page nine, Bill and I see this as transformational. I can't emphasize enough how important this is. We said, if you just combine two companies, you go to our cost, you get your profit up.
That's okay, but that's not exciting. What's exciting is to, yes, get the economics, but more importantly, to paint a pathway to the future so that this is a transformational organization. This paves the way for technological differentiation. Individually, we are strong, combined, we will be the best. For example, if you just look at our side, our U platform, in terms of mobile banking, it's ranked number one in Apple, number three in Android, number two in Dynatrace.
Our new data center we talked about is best in class. We have a new commercial loan system. We have financial insights program for our small and medium sized commercial clients, which is fantastic. SunTrust has some superior offerings, superior mobile application, received Joblands Leader Award, leading online consumer, leading, lending platform, LightStream, which is fantastic and growing really, really fast in a high quality manner. I have a fully digital mortgage application called SmartGUY, digital portal for private wealth clients, cloud based loan origination platform for wholesale, on and on and on.
Each of our companies have outstanding individual offerings. And then when you combine that, it gets to be pretty spectacular. So individually, we are strong, you know that, but together, we will be best in class. We will be able to leverage our scale to create capacity for incremental investments and technology to create a sustainable competitive advantage. We have built into our model 100,000,000 of excess investment in technology.
This is a big deal because as Bill is going to describe, we are really focusing, leaning on our front toes in terms of technology and innovation, and that money will allow us to come out of the chute with major investments in that area. We're focusing on creating a distinctive client centric experience to drive digital revenue and account growth. We're developing a new innovation and technology center right here in Charlotte where we're located this morning during this call. That's very, very exciting. We'll transform platforms to drive out cost, that's important, supporting a more technologically enabled business.
And we will gain incremental efficiencies through automation by enabling faster, smarter and more secure way of doing business. We will increase our investments in cyber and business resiliency because in this world, it's pretty risky, but we now have the capacity to make sure we're best in class in terms of cybersecurity risk and other risk management systems. Let me now turn it over to Bill for his insights. Great. Thanks, Kelly.
That was really well said. And let me just start by saying that I have tremendous respect for Kelly, his leadership team and the BB and T associates. We are just absolutely going to be great together. I want to reiterate, we didn't approach this as a merger of two legacy institutions, but rather the coming together of two strong foundations to create a different bank to create, as we've said, the premier financial institution. With that said, let me turn to Slide 11, and let's review the transaction terms.
As Kelly said, this is not an acquisition. It's a merger of equals, and I think the terms are reflective of that. Kelly and I, along with our Boards, have created a thoughtful transition plan that ensures we have strong side by side partnership for now and for many years to come. This was critically important to both of us. Our Board and executive management team will be evenly comprised of members from both teams.
However, to be clear, starting from today, we're going be referring to that as one team. The combined company will operate under a new name and brand that will be determined prior to closing. Kelly and I have been with our respective companies our entire careers. And I can assure you no two individuals are more attached to their brands. In our discussion, though, we both knew this was about the future.
So while we honor and respect our past, absolutely, we elected to create a new brand that reflects our future as the premier financial institution. We also decided on Charlotte as a new headquarters. Charlotte will be one of our top 10 markets, and collectively, we already have a significant presence here. In addition, as Kelly said, Charlotte's going be the home of our innovation and technology center. This is going to be the hub of our efforts to drive digital transformation through innovation.
Just like our brands, Winston Salem and Atlanta will always be our hometowns. It's where we're from. It's our legacy. Most of our people will be in Winston Salem and Atlanta and the headquarters of our community banking and wholesale centers. We remain incredibly committed to and invested in Atlanta and Winston Salem, which we'll demonstrate by increasing our investment in those two cities.
Lastly, we're targeting the close of the fourth quarter of this year, and both parties will work extremely hard to make this happen. So let's turn to Slide 12 so we can talk about the executive management team, which is very exciting. The great thing about our two companies is the breadth and depth of our teams. Kelly and I are really fortunate to have an incredibly talented group of individuals leadership team of our combined company. But it doesn't start or end with these 14 individuals on this slide.
It starts with all of our teammates and all of our associates who are going to be able to accomplish so much more together than we were alone. So in terms of the specifics, Daryl Bible, who serves as BB and T's CFO, will be our new CFO. Claude Starnes, the current Chief Officer of BB and T, will be our new CRO. Ellen Cobler, who was recently appointed Chief Risk Officer at SunTrust, will also be on the management team serving as Deputy CRO. Scott Case, who is the current CIO of SunTrust, will be the leader of our technology team at the new company.
Dante Wilson, BB and T's Chief Digital and Client Experience Officer, will also be on the team and work side by side with Scott to lead our digital transformation. Ellen Fitzsimmons, the current General Counsel at SunTrust, will take on expanded responsibilities at the new company as Head of Legal and Human Resources. In terms of our business leaders, Bo Cummins, the leader of Wholesale segment, will be the leader of our combined wholesale business David Weaver, the leader of BB and T's Community Bank, will be the leader of our combined Community Banking business Brent Sandridge, BB and T's current leader of Retail Banking will work closely with David as the leader of our expanded Retail Banking business. SunTrust CFO, Alison Dukes, be the new leader of our combined specialty lending businesses. She'll also have oversight of treasury and payments.
And Joe Thompson, who leads Centro's private wealth business, will have responsibility for our new company. And finally, Chris Henson, who serves as our Chief Operating Officer at BB and T, will lead our banking groups. This is really a great team. We know this new executive management team will work incredibly well together. We've already seen great evidence of that.
They're going to help keep us on the path of becoming the premier financial institution. I'm really grateful for their past experience, but I'm really more excited about their future leadership. So with that, let me turn it over to Alison to cover some of the business profile.
Thank you, Bill, and good morning, everyone. I'll start with an overview of the pro form a business mix on Slide 14. As Kelly and Bill have noted, this is an exciting transaction. And when you look at the pro form a financials, you really start to understand many of the reasons why. This merger brings together two highly complementary business models to create one of the most diverse and comprehensive business mixes in banking.
We believe this is a powerful combination, and we foresee strong revenue synergies as we drive further scale into certain businesses. Specifically, SunTrust Robinson Humphrey is a leading middle market investment banking platform that now benefits from an expanded corporate and commercial banking client base and a larger balance sheet. Additionally, BB and T's insurance brokerage business, which already has strong market share, brings a new highly relevant capability to the SunTrust client base. LightStream, SunTrust digital consumer lending platform, has produced good growth over the last few years, with 25% of its production coming from SunTrust clients. Going forward, we have an opportunity to leverage this platform into an expanded client base at a very low cost.
And lastly, there are many businesses where we will leverage our relative strength and create increased scale. Bigger picture, together, we will have a unique set of differentiated businesses, many of which are national in scope, we are extremely well positioned to provide our clients with an exceptional experience. Moving to Slide 15. Fee income will represent approximately 40% of our combined revenue profile and is comprised of a highly diversified set of businesses with a more balanced revenue stream relative to the two stand alone companies. Specifically, BB and T's insurance business, which has grown to comprise a meaningful 20% of the stand alone company's revenue, will be balanced against the more diverse revenue mix, and it will represent less than 10% of our combined total revenues.
Relatedly, SunTrust Capital Markets business, which is growing to comprise a meaningful 25% of the stand alone company's fee income, will now represent approximately 15% of fees, including BB and T's Capital Markets fees and 6% of total revenues. This affords both of these businesses more opportunity for growth without compromising diversity. Importantly, this comprehensive business mix not only positions us to meet a broader set of client needs, it also reduces the volatility of our earnings profile. Moving to Slide 16. This combination will also result in a diverse loan and deposit portfolio, both by type and by geography.
Additionally, BB and T's community bank model brings a slightly more rural deposit base, which helps to balance out SunTrust's slightly more urban oriented deposit base. Importantly, this combined balance sheet also enhances our capacity to grow certain businesses while keeping in mind our collective commitment to maintaining a rigorous risk management culture. Moving to Slide 17, which illustrates the highly synergistic and transformational nature of this merger. Together, we represent the sixth largest bank in The United States. And within our combined Southeast Mid Atlantic footprint, we will have the third largest deposit market share behind Bank of America and Wells Fargo.
We will have significant depth and relevance within our markets, evidenced by the fact that we will have eight states with a top three market share and our weighted average rank in our top 20 MSAs is number two. Moving to Slide 18. A key element of the strategic rationale behind this merger is that it is highly synergistic. BB and T and SunTrust have almost the highest degree of branch overlap within a two mile radius of any two banks between 50,000,000,000 and $500,000,000,000 of assets. In fact, 24% of our branches are within two miles of each other, which creates significant opportunity to reshape and modernize our brick and mortar footprint.
Despite this branch overlap, we expect a low level of deposit divestitures. As we rationalize our branch network, we will maintain the same level of analytical rigor and discipline we have individually shown, which has driven very strong deposit retention rates for both of us. As you can see on Slide 19, this combination is amplified by an extremely favorable demographic backdrop. Many of our businesses will operate within the highest growth markets in the country. This, when combined with our revenue synergy opportunities and investments in technology and innovation, creates a compelling growth story, and we will ensure that together, we do all that we can to capitalize on this opportunity.
With that, I'll turn it over to Daryl for a review of the financial profile and impact.
Thank you, Alison. I'll begin my comments on Slide 21, which highlights key assumptions regarding the proposed merger. Each SunTrust shareholder will receive 1.295 shares of BB and T stock. We assumed a core deposit intangible equal to 2% of non time deposits is generated through this transaction and is amortized over ten years using some of the year digits. We have assumed a modest 2% gross mark on SunTrust loan portfolio, which we believe is appropriate given the quality of their portfolio and our conservative risk profile.
We have assumed approximately $1,600,000,000 of pretax cost saves, net of additional investment, which is approximately 12.5% of the combined company's expense base. We have not modeled any revenue synergies. However, we do expect revenue synergies based on the complementary and diversified capabilities we bring each other, as Allison highlighted in the previous section. We look forward to updating you on our progress here as we bring the two companies together. We are targeting an approximate 9.5% to 10% CET1 ratio at closing, which will be achieved given both companies' organic strong capital generation and temporary suspension of share repurchases by both companies in 2019.
Lastly, we are targeting closing in the fourth quarter of twenty nineteen and both parties will work extremely hard to make this happen. From a financial return perspective, returns are strong and shared between two shareholder bases. GAAP earnings accretion is thirteen percent and nine percent for BB and T and SunTrust shareholders, respectively. Cash earnings accretion, which is probably more relevant metric in the context of capital generation, is seventeen percent and sixteen to BB and T and SunTrust shareholders, respectively. This will also be 5% accretive to SunTrust shareholders' current dividend.
We are modeling an 18% IRR well in excess of the combined company's cost of capital. Lastly, the transaction is 6% accretive to BB and T's projected tangible book value per share at closing, including full onetime merger costs. Slide 22 provides detail on expected cost savings and sources of those savings. As I stated earlier, the $1,600,000,000 of pretax cost savings are net of investments. As Bill and Kelly have already alluded to, one of the most powerful benefits of this merger is that we are able to take significant cost out from redundant areas and reinvest it into innovation, technology and our talent, ensuring we are much better positioned for the future.
As you can see, there are almost seven forty branches within two miles of each other, which represents 24% of the combined franchise. This overlap is almost unparalleled in banking, particularly among larger institutions. One thing that I am personally excited about is that we have the opportunity to choose the best of both companies in terms of processes, systems and people. We have respect for the talent and technology at SunTrust, and we look forward to applying that skill, expertise and capabilities towards our shared clients. And we know Bill, Allison and the broader SunTrust team feel that same about BB and T's capabilities.
On Slide 13, a simple illustration of the combined company's profitability profile. This information represents twenty eighteen actual results overlaid with a 1,600,000,000 pretax cost savings net of investments. This combination propels us into the leading position amongst our peers. Individually, each of our return and efficiency profiles were strong, but together, we become the best. Once the synergies are fully realized beginning in 2021 and 2022, we expect to produce a tangible efficiency ratio in the low 50s and a cash return on average common equity north of 20%.
Moving to Slide '24. Importantly, these industry leading returns will be achieved by continuing the conservative risk profile of both companies. The combined company will be uniquely positioned of producing best in class returns while having a strong balance sheet and low levels of credit risk. This is true both today and potentially in more adverse conditions, as illustrated by the fact that we have both consistently demonstrated lower levels of losses and capital erosion relative to our peers in CCAR. We expect to maintain a 9.5% to 10% CET1 ratio and will target an LCR ratio of around 115% to 120 This assumes the tailoring NPR is finalized as proposed, and we expect the combined company to be a Category III institution.
The institution will be funded primarily with low cost deposit base and have minimal reliance on wholesale funding. Our philosophy on our investment portfolios are identical. We want to ensure that our investment portfolios are high quality such that they can provide us and our clients with strong levels of liquidity in both Our goal is to continue to maintain strong credit rating for the combined company, and we believe that diversity of our combined business mix, our low relative risk profile, our strong capital and liquidity position and our industry leading profitability levels should be supportive of this. Slide 25 provides you an overview of our approach to capital allocation. We believe the philosophies of each company around the disciplined capital management are aligned.
First and foremost, we deploy capital on behalf of our clients to help them achieve growth. Second, we want to ensure that we have strong and sustainable dividend to help our owners have financial confidence through multiple cycles. Lastly, we will have excess capital and we'll return it to our shareholders via share buybacks. Our capital generation of the combined company will be industry leading and will provide significant opportunity for us to help our clients, communities, teammates, associates and shareholders grow. Moving to Slide 26.
Clearly, the most important work stream over the coming months and years will be integrating these two iconic institutions. While the effort required will be significant, we believe there will be a number of factors that should give you comfort in our ability to do this. First, we both have deep experience successfully integrating acquisitions. Second, we will have a very deliberate, diligent and highly governed process to ensure all work streams move forward in an organized and structured fashion. Third, we understand each other's business, footprint and competitors very well.
And lastly, and most importantly, we have a strong cultural alignment. We each care deeply about our clients, communities, shareholders, teammates and associates, and we both have very similar and conservative risk cultures. We will be transparent with all of you on our progress towards integration, both prior to and after the closing of the merger. Now let me turn it back to Bill for closing comments.
Great. Thank you, Daryl. Let's turn to Slide 28. I think it's very clear the combined company has the opportunity to do more than we could have done on our own, and all of our stakeholders are going to benefit. As Kelly and I reiterated through this presentation, we are relentlessly focused on the client.
Together, we're going to make significant investments in talent and technology to deliver superior client experience for our clients, help them achieve smart growth and just make banking easier. This all ties back to our purpose of lighting the way to financial well-being and making the world a better place to live. Related to this purpose, we remain steadfast in our commitment to our communities. I fundamentally believe that together, we're much better positioned to serve all of our communities. To our shareholders, I think the financial results of this combination are clear and compelling.
I also want to assure you that together, we'll maintain the same disciplined approach to risk and capital allocation that we have as two stand alone companies. And then importantly, to the SunTrust teammates and BB and T associates, I'm sure that many of you are listening to this call, and I want to reiterate the combined company will remain committed to developing, retaining and investing in you. I also want to emphasize the opportunity for you to all come together in the spirit of being the best. Kelly and I, along with our leadership team, we are absolutely committed to making this the best bank in the country to work for. So to conclude, let's turn to Slide 29.
Killing up had a lot of conversations about our mutual desire to focus forward, embrace the opportunity for disruption and position our companies for future success. This merger of Equals is the first step towards creating the premier financial institution, and we're just incredibly excited about the opportunity that we have in front of us. As we said, it's truly and highly synergistic, financially compelling and ultimately transformative. Kelly, I just want to thank you for your tremendous leadership, and I know that you're going to be providing that for us over the next years. And I can't say how much I look forward to working together.
So with that, Ankur, let me turn it over to you.
Great. Vicky, we're now ready to begin the Q and A portion of the call. As we do that, I'd like to ask everyone to limit their questions to one primary question and one follow-up so that we can accommodate as many of you as possible today.
And we will go first to John McDonald with Bernstein.
Hi, good morning guys. I was wondering to kick things off, Kelly and Bill, if you could give us some thoughts of how your thinking evolved over the last few months. Kelly just had a big Investor Day, highlighted your strategy for going alone. And Bill, you've talked over the years about investing in SunTrust and feeling good about going alone. So just kind of wondering over what timeline your discussions occurred leading up to this deal and how your individual thinking evolved?
Yes. So thanks. What you said is exactly right. We have both been laser focused on organic growth. That's the best way to run any company.
I have said repeatedly for some period of time, we were not interested in smaller institutions because of the distraction from our organic growth focus. And to be honest, because I've said that the economics didn't work. Marketplace had priced smaller institutions at a level that we couldn't make the numbers work. You've also heard me say for decades that the best combinations are MOEs and especially if it's an MOE end market. And so how this evolved is that over the years, Bill and I have been very involved in various industry organizations.
Over particularly the last couple of years, we've had lots and lots of industry discussions about what's been going on in the world. Everybody kind of recognizes that the world changed. But I really think Bill and I saw it more clearly than most. And as much went on and then most particularly in the last few weeks, we started really looking at the possibility that we could actually put our companies together because we have a like mind of the future challenges, future opportunities, a light culture, fantastic markets. We just said, wow, it's actually possible for us to combine our companies and make two plus two plus five.
And then in a relatively short period of time, we were able to put the deal together because it's just such a logical deal. So I think it's just one of those natural things that just evolved in two good companies. And I'll speak for Bill, a great leader, sees what the possibilities are, good things happen. And John, I would just add, I mean, when Kelly and I started talking, it was we never really started with an MOE. We started with an MOE for something.
It's probably easy to add companies together and see how compelling the financial results would be. But what would it be for? What would we be trying to achieve? I look I think about it like we're doubling or tripling down on organic. We just now have a much more compelling denominator, so to speak, to have tremendous organic growth in both our companies, and the combination just accelerates that.
Okay. And then just as a follow-up, I think Alison mentioned not needing big divestitures. Wondering if you could comment on the potential market concentration issues in a deal like this and what kind of regulatory hurdles or questions you could face on market concentration?
Hey, John, this is Daryl. I would tell you that the divestitures are pretty minimal here, approximately $1,000,000,000 plus or minus in just a few markets. So it's really amazing how you put these two companies together, cheap big hot saves and have hardly any divestitures.
And we'll go next to Mike Mayo with Wells Fargo Securities.
Hi. I think as you said, the numbers work. It's factual that the demographics are better in the Southeast. It's factual, you said about the branches, the cost savings, the accretion will run through our numbers. But on paper, this looks really good.
I think the biggest question is the extent of the equal nature of the merger. So if we look back at other mergers of equals, know, some have worked, some haven't. You go back to Citigroup. You go back to T Corp. Even Comerica manufacturers, I remember the CEO, Gene Miller, said a few years after that, he said, well, half the room was talking Spanish and the other half of the room was talking French, saying they weren't talking the same language.
So, what is what assurances can you give investors that everybody will be talking the same language, talking to the same page? It's just so equal. Doesn't someone have to be in charge at some time?
So, Mike, you did mention one of the most successful MOEs in history, BB and T and Solar National in 1995 that I was kinda really involved in. It was, I think you would admit, one of the best that we've ever had. Maybe because we all spoke English, I'm not sure. But we certainly all around this table speak English. And what makes an MOE work, Mike, really is that the two leaders genuinely, honestly, mean equal.
That's why when we started out day one, we said this would be equal. This would be equal in terms of my role for a period of time and then a following role for Bill. This would be equal in terms of the board of directors. This would be equal in terms of the executive management team. This will be equal in terms of all the way through the organization as we select products and processes and systems and people.
You have to really be truly committed to equal because when you are truly committed to equal, then everybody gets excited and passionate about it and you really do pick the best of both organizations. And I'll tell you, I haven't been through one, it's just pretty incredible. Every organization has great parts, but every organization has weak parts. And when you get a chance to marry two great organizations and pick the best from both organizations, get great, great. And so you can rest assured this will be highly successful.
This will be the best MOE in the history of banking. Mike, I think we checked the boxes, as you said, and the things that you check for an MOE. We had Board, we had management and we had transition all identified and locked out. But I think most importantly, and I can say this for the conversations we had, is everything went to the middle of the table first. I mean nothing started at the edge of the table in the conversations.
Everything went in the middle of the table, headquarters, name, all those things that people get caught up in. So I feel extremely confident that we're going to speak the same language and move forward. And as Kelly said, I mean, we're going to make this the best MOE that's ever been done.
And how long will it take for you to make deeper management decisions? When do you expect the kind of second layer of executive management to be named to reduce that uncertainty?
Mike, it's important to move fast as you're alluding to. We have already identified the 14 member executive management team. We are already working on a second operating committee that will be a high level of executives that will have multiple operating duties that is already underway. We will begin the integration process next week. This is not a situation where we wait until September, October when the closing occurs.
We will start meeting as an executive team next week. We will meet a full day every week and guide this transition. That's what we did when we did the Southern National merger, it works. The executive team has to be the primary integration leadership group. There will of course be the subgroups that will do lots of the real work.
But that has already started and will continue with haste next week.
Thank you.
And we'll go next to Betsy Graseck with Morgan Stanley.
Hi, good morning.
Hey, morning. Hey, Betsy.
Can you hear me? Yes. Very exciting. Just wanted to ask a couple of questions here. One is on how you are thinking about integrating the organizations and the timeframe for that.
I mean, understand the closure is going to be coming sometime in September, October. I'm assuming that you already spoke with regulators and have confidence around that timeframe. But I'm thinking about the more nuts and bolts of not only branch decisions, but also systems. And it's not just a question around the timing of those that execution, but also how you compete for mindshare in the markets when today now all your competitors see this is going to happen and Kelly, as we mentioned, as we discussed at your Investor Day, competitors are pretty aggressive about going after your clients during periods of what is perceived disruption. So wanted to understand how you're thinking about integrating timeframe and the speed with which you can do that.
Betsy. So we've obviously already talked a lot about that. As I just indicated to Mike Mayo, we will actually start have already started. I mean, the executive management team is full. Everybody knows who they are, what their jobs are.
We already have a good bit of preliminary work on the next level, which will be an operating committee. That will continue with great focus next week. Our executive team will be meeting weekly to make all the major decisions kind of top down flowing. We will tackle methodically which deposit system, which loan system. We will start immediately focusing on the branch closures.
We won't be closing them, of course, immediately. We can't do anything until the actual closure. But you can do a lot of work. We've learned over the years, all the mergers we've done, that you can do almost all of the planning work pre closing. So that when you actually close, you go into immediate execution.
You don't have to close and then say, what are we going do? We will have all of the what are we going to do decided before we close. So on closing day, we're moving the execution in all of these various areas. Different work streams will move at different paces. For example, the branches will take a little longer because we have to be very careful about closing branches.
Clients are very sensitive. They like technology, but they still love their branches. So we'll be very careful and methodical about that. And I can assure you that with the mergers that SunTrust has done and the merger that BBT has done, we have some super qualified people that know exactly how to do this. I'm not being cocky, but I am confident that we will be able to do this and we will do this extremely well.
In terms of people attacking our clients in this process, our people are, as we speak, calling our best clients. Started one point hours ago. We are calling our top shareholders. We are in motion, making sure everybody understands that this is positive for everybody. This is great for our clients.
It's fantastic. There is no other institution that can go to one of our clients and offer something as good as what we offer. And so we will be methodical and very energetic about talking to our clients, but we don't expect any attrition. Rather, the opposite is to likely and that is we will have other prospects calling us and we will be seeing other prospects and growing our business. We fully expect to grow our business right through the process.
So just stay tuned. It's going to be great.
And then can you just give us some color around the conversations for the new name, the branding? Why did you choose to go out with the announcement this morning before the branding was decided? Is there a reason for that? And help us understand how you're thinking about what branding you're looking for.
Yes. This is Bill. I think actually the excitement we want to build around the new brand. So we want to involve we'll do a lot of qualitative, a lot of quantitative research, but we also want to involve our associates and teammates to really get their feedback and build ownership in the brand versus something Kelly and I cook in the backroom and introduce. So that was very intentional as we want the building of the brand to be part of that process where we build unity and come together as a company.
And it will reflect all the things that we've been talking about, about leaning forward and thinking about the future. And I think it's going to be one of those great cultural moments for our company of building this brand together.
We'll go next to David George with Baird.
Thanks. Good morning for taking the questions. I had a couple of questions related to the financial assumptions on the deal. If we're looking at I assume you used Bloomberg or First Call numbers for both SunTrust and BB and T. Did you take out the buybacks that are embedded for both of those companies when considering the accretion for the deal?
And then I've got one quick follow-up.
Yes, David. We did. We used consensus for 2019 and 2020 in our model, And then we had growth rates going on after that, but we did take all buybacks out for 2019, such that we would build our capital up close to that 10% CET1 ratio.
Okay. Appreciate the color on that, Daryl. And Kelly, I guess by your most recent comments to the last question about attrition, you're not assuming my next question is going to be related to, are you assuming any kind of balance sheet runoff as a function of this deal, as a function of client attrition, etcetera?
Yes, we expect growth from day one.
We did bottom line growth after the conversion and building up over the years.
We'll go next to Saul Martinez with UBS.
Hello. Hi. Good morning. Good morning. This is Saul Martinez.
I don't know if my name was mentioned. So a couple of questions on my end. How confident are you in the fourth quarter close? I think you in an earlier question, you addressed the issue of market concentration. But any issues that you think we should be aware of that could come up in terms of the discussions with regulators?
If you could give us a little bit more color on the closing process and or the approval process and how you were thinking about the timing within the context of what you said in the fourth quarter?
So we're very, very confident about the closing. Our people actually put in the fourth quarter. I have actually another targeted date. Have September 12 is my target closing date. That just happens to be my birthday.
And so I'm challenging everyone to put it down on September 12. I believe we can do it. There's nothing that I can see that will stand in the way of this combination. We have outstanding CRA ratings, best in class in terms of compliance ratings. We both have excellent relationships with our regulators.
And while we obviously can't disclose any confidential discussions with our regulators, you might expect that we wouldn't announce something as large as this without feeling confident that our regulators would be positive with regard to such a combination. So there really are no obstacles that we see that will be insurmountable. Obviously, we will be working very closely on all of the outside existential issues that may affect us, but we're very, very confident.
Okay. Got it. And if I could follow-up with questions on the cost save assumptions of $1,600,000,000 Can you just give a little more color on the breakdown of what's driving that? You put some bullets in there on what the expected sources are. You kind of suggested or you've indicated that the branch overlap is pretty pronounced relative to most banks.
But of that $1,600,000,000 sort of what's the breakdown between the different buckets? And it is, what, 12.5% of the combined expenses. I guess is there any potential upside to that as well? Feel that's a conservative estimate or more of a realistic estimate?
Yes. So, Saul, this is Daryl. What I tell you is that we want to under promise and over deliver. So we put numbers in there that we know we can achieve. When you really think of it, we have duplication throughout the whole company.
So you would have like GL systems, like commercial lending systems. As we select the systems and support around the systems, those other costs fall off. Head being larger or doubling in size, we'll have more power when we're negotiating with vendors. So we'll get savings from that perspective. As we consolidate branches and some of our back office operations facilities, costs will come down.
So we are at a point now where we want to give you specifics on it. Just know that it will basically feed through across the whole expense line item as we come together and make the selections and move forward. So we feel very comfortable with what we have. And when we if we do achieve more savings, it's really up to Bill and Kelly how much falls to the bottom line and how much they put more into other investments.
Yes, this is Allison. I would just add, when you look at the efficiency ratio and how industry leading that efficiency ratio is, it gives us a tremendous amount of capacity as we identify even more cost savings than we already have to do exactly as Daryl said, really think about how we can use that to create further investments and innovation. And we'll be returning some along the way to our shareholders as well.
And we'll go next to Ken Usdin with Jefferies.
Thanks. Good morning. Just a couple of follow ups on the revenue and expense side. Daryl, to your earlier answer there, dollars 1,600,000,000.0 of net saves. Can you talk about the gross versus the investments?
What do you still what
do you where is the investment side of that? How big is that as a proportion versus that gross side number? And how you think about that as in proportion as it relates to that efficiency ratio target?
Okay. Kelly mentioned in his opening remarks that we have $100,000,000 expense increase in innovation on an annual basis in his opening remarks. We have other increases there. We really aren't at the point where we want to disclose all of our investments because we're really going to go through and scrub each areas and figure out all the savings. And like I said in the last call, we're going to decide how much falls to the bottom line and how much more investment.
We know, as Alison said, this is a great transaction. And it's not just cost saves that's driving this transaction. It's also the ability to invest for the future. That's what makes it so magical. I know Bill and Kelly talked about two plus two, eight point five.
This is what it's really all about.
And on the other side of the revenue side, you did mention that you don't have revenue synergies in, but you expect it. So I wonder where you think the biggest potential areas are. And also you mentioned the hopeful closing of the or formalization of the tailoring benefits. And what do you think that magnitude could be from tailoring when you think about now the new combined pro form a? Thanks guys.
Ken, I'll start with the revenue synergy. You're right, we didn't model anything in. It's pretty compelling without it, but suffice it to say, the complementary nature of these businesses is what gets us really excited and we think they're just tremendous opportunities. I'd start with thinking about the strength of our capital markets platform being delivered across BB and T's really strong wholesale client base. We have had some great success, as you know, and really growing our capital markets revenue by delivering those products and solutions down market into our commercial client base.
What we have now is just a larger denominator, as Bill referred to earlier in the call, to deliver those solutions across and we're really excited about that. When you think about BB and T's insurance business and the strength of that business, it's something we just absolutely don't have in our portfolio today and we have an opportunity to really think about how do we deliver that across our wholesale client base. You think about our mortgage businesses together and how large they are and mortgage is really a scale oriented business and this is going to allow us to drive even greater top line growth in that business. LightStream and our digital lending capabilities. One, we have first of all, let me call it back to LightStream, twenty percent, twenty five percent of those originations come from an existing SunTrust client base.
You think about that across BB and T's consumer client base and the ability to integrate that tool into what they do and deliver that solution across the greater breadth of clients. But also it's really the technology and the capability we have there and how we could think about utilizing that in an even more elaborate way to reach more clients and really deliver that high touch, seamless, frictionless client experience that our clients are looking for in all of their interactions, not just in a consumer lending profile. I'll let Daryl touch on the tailoring and PR.
Yes. So Ken, on tailoring, I would say with the new category of banks between $250,000,000 and 700,000,000 that really allows us to not have to worry about the AOCI that flows through the balance sheet and capital numbers for capital ratios. The LCR what we assumed right now is that the LCR would stay at the 70% cash flow level. But if it goes to the 85%, which is the range, that's not manageable and feel that we can accomplish that without any significant impact at all. Tailoring helps with OCI the best.
But I think just overall, as we put this company together, we have kind of a fortress balance sheet with strong capital and liquidity, high capital generation, and we're going to have the ability to make significant investments for the future.
And we'll go next to Stephen Scouten with Sandler O'Neill.
Yes. Hi, congratulations, everyone. I'm curious just how you're thinking about kind
of the expected potential for disruption in your markets. You talked about how you guys have already gone out to clients. But I'm wondering on the other side of things as other regional banks maybe try to poach some of your people in the near term, even some of the mid cap banks and what you think you can do to make sure to minimize disruption and continue to deliver growth upon the completion of the deal as you noted?
Well, Stephen, challenge here is what type of culture you have, what type of engagement your associates have and whether you have an attractive place for people who want to work. We both have really, really good cultures. Combined, our cultures, I believe, will be even better. We have really strong benefit programs. Our associate engagement scores, for example, at BB and T are 79% highly engaged versus 64% for the industry.
SunTrust has similar types of numbers. And so yes, our people will get calls from others. Of course, they would like to try to have our people. But I'm not aware of any other competitor out there that offers the kind of current and future opportunity for associates that we offer, especially combined. And so my question is why would anyone logically think anyone would leave us to go to someone else who's not as good?
I'd just say, I think Kelly and I have the same approach as we recruit our people every day, not ourselves. So that's the mantra that we have, and that's going to continue. And from the teammate and associate perspective, we just exponentially increased their opportunity to serve clients. So I think they're just going to get really excited about that opportunity. And we also are going to exponentially increase our investment in VIM.
So I mean, I think those are good combinations. And we're going to recruit them today and tomorrow, just like we did yesterday and last week.
That's great. That's really helpful. And then maybe digging down a little deeper to the investment bank, wholesale bank. SunTrust guys have had great success, like you said, pushing that in across the commercial bank. Is that the main area of opportunity to leverage the investment bank into the BB and T profile?
Or do you start to invest in scaling up that business even more so even prior to the completion of the deal?
I think it's two things. Think it's exactly what you said. One is to continue to expand the capabilities. We'll look at all the industry verticals. We'll do all those combinations.
As Kelly said, that work's already started. We're already looking at those things where we get the leverage. And then as we talked about, just the ability to grow the business on a larger denominator. So just like Kelly and insurance, we were worried about capital markets from a diversity standpoint, how big a part of our portfolio was going to be, which has changed that dynamic. So the ability to grow the business organically, the ability to continue to invest, the ability to leverage a bigger platform is just a new opportunity.
Vicki, we have time for one more question.
Okay. We'll go next to Lana Chan with BMO Capital Markets. Hi. Congratulations on the deal. Just have you looked at how much customer overlap there is between the two banks, especially on the commercial side of the house?
It's really very small. We both have competed, I think, very strongly against the largest institutions, not so much against each other.
Yes. And I would just add, our strength in the wholesale business are probably pretty balanced. We're really strong on the upper middle market, large corporate side. BB and T is particularly strong in the small business, smaller commercial side. So it's very complementary in nature.
As you think about some of the larger relationships where we will have some overlap, The great news is we have a much larger balance sheet. We have the opportunity to have larger relationships with these clients, and we're excited about that. We don't see that as a real challenge. We frankly see it as a bigger opportunity to create deeper relationships with these clients across a broader suite of capabilities.
Okay. Thank you. And then just a follow-up, if I may. In terms of the previous question about confidence about getting the regulatory approval, just BB and T, they still have the consent order from the BSA AML issue?
We do still have a consent order with the Federal Reserve. You may recall that a couple of months ago, it was released from the FDIC and the North Carolina Banking Commission. We we believe, in the very final stages of having that lifted with the Fed. Obviously, we can't speak for them, but we have done everything that they have asked us to do. And it is in the final stages of the regulators doing the final validation, they call it, of the changes that we have made.
So we've made all the investments. All of the feedback we get as of today is extremely positive. So I believe we're on the five yard line, maybe the three yard line in terms of this being resolved. And in any event, we do not expect, even if it were outstanding, we do not expect it to stand in the way of this combination being approved.
I would like to hand the call back to Mr. Anker Vioff for additional or closing comments.
That's it. Thank you, Vicki, for hosting the call. Thank you, everyone, for joining us this morning on short notice. We're all very excited about the transaction and the combination. Please feel free to contact myself or Rich if you have any follow-up questions.
That does conclude today's conference. We thank you
for
your participation.