BMO to buy California-based Bank of the West from France's BNP Paribas for US$16.3-billion - The Globe and Mail

A Bank of Montreal branch in Ottawa, on Feb. 14, 2019.Chris Wattie/Reuters

Bank of Montreal has struck a major deal to buy California-based Bank of the West for US$16.3-billion from its parent company, French bank BNP Paribas.

The purchase price is to be paid in cash, and will amount to an estimated US$13.4-billion of capital from the Canadian bank along with US$2.9-billion of cash currently held by Bank of the West, BMO said in a news release. BMO plans to use excess cash on both banks’ balance sheets to fund the acquisition

In simple dollar terms, it is the largest acquisition any Canadian bank has made in the last 20 years. Bank of the West has US$105-billion of assets, and BMO will acquire US$56-billion of loan and US$89-billion of deposits.

The deal allows BMO, which has a strong presence in the U.S. through its BMO Harris Bank subsidiary, to expand nationally. Bank of the West focuses mostly on consumer and commercial banking, with 514 retail branches, commercial and wealth management offices spread mostly across the western United States, from California to Oklahoma and Wisconsin. About 70 per cent of Bank of the West’s deposits are in California, where it has its San Francisco headquarters.

“This acquisition enables contiguous market extension, the acceleration of BMO’s commercial banking expansion, and highly competitive scaled entry into California,” the bank said in a news release.

BMO expects merger and integration costs of approximately $1.7-billion and cost savings of $860-million “through operational efficiency improvements.” All of the cost cutting is scheduled to take place in the first year after the deal closes.

Bank of the West’s modest overlap with BMO’s existing operations could limit the opportunity to close branches or cut back duplicate office staff to make the combined bank more efficient. BMO said in a news release that it “does not plan to close Bank of the West branches.”

BMO’s main strength is in commercial banking, where it has been expanding to major U.S. cities. Until now, however, the bank had given little indication that it was interested in pushing farther into branch-based retail banking in the U.S. Instead, BMO has been gathering deposits digitally in states outside its core Midwestern branch network.

To raise the purchase price, BMO plans to use $13.5-billion of its own capital, which includes funds from the sale of its asset management business in Europe, the Middle East and Africa. It will also use $3.8-billion of capital from Bank of the West, cancel a recently announced share buyback plan and put in place a dividend reinvestment plan to raise about $2.7-billion of common equity by the close.

Some analysts had been skeptical about the deal. “The reason BNP is allegedly looking to sell Bank of the West is that it is a low-return business,” said National Bank Financial Inc. analyst Gabriel Dechaine, in a note to clients last week.

Regulatory filings put its return on equity at 7 per cent so far this year – compared with BMO’s U.S. ROE of 15.9 per cent.

But Dave Casper, BMO’s head of North American Commercial Banking, said in a news release that Bank of the West “is a well-run and well-respected organization that will bring complementary capabilities, products and segment expertise to BMO.”

BMO is also entering a long-term agreement to provide equipment financing and cash management services to BNP Paribas customers in North America.

BMO Capital Markets and Morgan Stanley & Co. LLC were financial advisers to BMO.

The transaction is expected to close by the end of 2022, subject to conditions and regulator approvals. Bank of the West would be merged into BMO Harris Bank.

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BMO to buy California-based Bank of the West from France's BNP Paribas for US$16.3-billion - The Globe and Mail
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