The analysts and the companies are so often at odds these days that you begin to wonder whether they are from the same universe.
Thursday's stunning merger announcement between SunTrust (STI) and BB&T (BBT) was, I think, all about "disrupt to thrive," as BBT's CEO Kelly King said on its conference call. Sure they had a cultural fit. There are strategic similarities and tremendous economics to the deal. The efficiency ratio -- the expenses as a percentage of revenue -- will be an astounding 51%.
And, yes, there will be an amount of branch fat taken out that will be incredibly bountiful, with 24% brick and mortar overlap.
But to me, this deal is about keeping up with the Joneses -- or more exactly, keeping up with Wells Fargo (WFC) , JP Morgan (JPM) and, most importantly, Bank of America (BAC) , as these behemoths can spend the money to build cloud-based customer relations platforms that have been phenomenal at adding new clients.
The two companies are going to commit $100 million to an Innovation and Tech Center in Charlotte, NC, where the new headquarters will be, although, as they say, Winston-Salem, NC and Atlanta, GA, will remain the homes of BBT and SunTrust.
But the money saved, as much as I would hope would go to shareholders, may end up, in large part, being spent on information technology. I think the money is best spent optimizing digitization, migrating to the cloud for all functions and making it so you have the best mobile customer interface possible.
Which brings me back to the analysts on Thursday's conference call. Almost every single question that was asked had to do with the old nuts and bolts of banking: capital ratios, regulators, loan growth, the usual. Sure, there were questions about the expense side. And there were questions about cultural fit.
But there was nothing about technology. Yet I think technology -- specifically, customer relations management -- drove this deal. Right now, the best customer relations management when it comes to opening new accounts is Bank of America. BofA has an incredibly good app. It has Salesforce (CRM) at its side to figure out what customers want and to integrate it into the app.
That is why Bank of America has such strong account openings, because people want to bank on the app -- not the brick and mortar, and brick and mortar is now an expense not an investment.
Consider these numbers from the most-recent Bank of America quarter: Active Digital Banking Users, 36.3 million, up from 31 million three years ago; person to person payments (Zelle) 51 million, up from 7 million three years ago; digital deposits 77%, versus 67% three years ago. Digital deposits cost the bank one-tenth of what brick and mortar deposits do.
When you talk to the execs at Bank of America, offline digital is the first thing they talk about. Why? Because it's how they get new clients. What's the second thing they talk about ?These clients are not just millennials. They are anyone with mobile phones -- no matter what the age.
Now go to the last quarter presentations of BBT and SunTrust. They have apps for certain -- good ones, SunTrust an exceptional one -- but they don't even talk about them in their earnings presentations. SunTrust says it is number one on Apple (AAPL) . But if you go to Google (GOOGL) and look up best mobile banking app or most-asked-about mobile app, you keep getting Bank of America.
So put it all together. If Bank of America is gaining millions of clients and they are not all millennials -- in fact they are evenly distributed by age -- where are they coming from?
Other banks. Not just first-time accounts. Transferred accounts; wealthy or established accounts. The best kind.
Bank of America is using their tech expertise and their customer relations management to take clients from everyone.
I think this SunTrust-BBT deal may be more about digital defense and offense. It's about having the scale and the money to invest in more tech to keep those clients at these banks -- and keep them happy in a digital world. Keep them from migrating to Bank of America.
But the analysts don't seem to get that at all. They are hidebound. They don't know about CRM. They don't know about the cloud or all the costs taken out if you merge a system on Workday or on Service Now and you save huge costs.
My conclusion: It should be an imperative going forward that banks be jointly covered by old-time bank analysts and by tech analysts. That's what will determine the next-gen numbers.
These guys? They just don't get it.
