Bank of Montreal (BMO) Signs Deal to Buy BNP Paribas' US Unit
Bank of Montreal BMO has signed an agreement to acquire BNP Paribas SA’s BNPQY U.S. banking unit, Bank of the West, for $16.3 billion in cash. Completion of the deal, subject to customary closing conditions, including regulatory approvals, is expected by the end of 2022.
Shares of Bank of Montreal fell 2.2% on the NYSE immediately following the news announcement. However, the next day, shares of the company gained 1.5%.
Notably, Bank of Montreal will fund the transaction through excess capital on the combined entities’ balance sheet at closing. Excess capital of $2.9 billion has been estimated at Bank of the West at closing. Thus, net of the estimated excess capital at Bank of the West, the purchase price is $13.4 billion.
Per people with knowledge of the matter who asked not to be identified, the Canadian lender was engaged in initial talks, discussing the buyout of the Bank of the West for the past few days to expand presence throughout the western United States.
Notably, last month, Bloomberg reported that BNP Paribas was working with advisers to explore a potential sale of the U.S. retail unit. Being Europe’s biggest bank by assets, a sale of the U.S. unit will pave the way for an acquisition in Europe or Asia for BNP Paribas. Alternatively, the French bank could use the sale proceeds for higher capital returns to shareholders.
Deal Details & Financial Benefits
Based on Bank of the West’s balance sheet as of Sep 30, 2021, the deal will add $56 billion in loans and $89 billion in deposits to Bank of Montreal.
On closing, the acquisition is expected to bring 1.8 million customers to Bank of Montreal. Moreover, Bank of Montreal’s banking presence will get extended through 514 additional branches, and commercial and wealth offices in key growth markets in the United States.
Following the completion of the deal, Bank of Montreal will have a strong position in 3 of the top 5 U.S. markets, a footprint in 32 states and a digital banking platform gathering deposits in all 50 states.
Bank of Montreal will not close Bank of the West branches. The Canadian lender is committed to retaining front-line Bank of the West branch employees and enabling career development opportunities throughout its North America footprint.
The acquisition is expected to be immediately accretive to Bank of Montreal’s adjusted earnings per share, post closure. In 2024, the deal is expected to be accretive to earnings by more than 10% (including estimated cost synergies).
Bank of Montreal expects to incur pre-tax merger and integration costs of C$1.7 billion, and achieve pre-tax cost savings of C$860 million or 35% of Bank of the West’s non-interest expenses. Post closure, 100% of the cost savings are expected to be executed by the end of the first year.
The transaction has an estimated internal rate of return of 14%. Bank of Montreal expects to take a gross credit mark of C$992 million and reflect a fair value mark of C$218 million. Both figures will be accreted into adjusted earnings.
Bank of Montreal also intends to introduce a 2% discount on shares issued under its dividend reinvestment plan and expects to raise C$2.7 billion of common equity prior to the deal closing.
Management Comments
Darryl White, the CEO of Bank of Montreal, stated, “With the strength of our performance and our integrated North American foundation, we have never been better positioned to take this next step in our growth strategy and to deliver for the new customers and colleagues we look forward to welcoming to BMO. This acquisition will add meaningful scale, expansion in attractive markets, and capabilities that will enable us to drive greater growth, returns and efficiencies.”
David Casper, the group head of North American Commercial Banking and U.S. CEO of Bank of Montreal, commented, “Bank of the West is a well-run and well-respected organization that will bring complementary capabilities, products and segment expertise to BMO, all of which are accretive to our existing franchise. Combining these strengths with BMO’s proven track record of executing and integrating acquisitions will position us to leverage our capabilities to serve more personal, business, commercial and wealth customers.”
Bank of the West’s CEO, Nandita Bakhshi, said, “On behalf of all of my colleagues at Bank of the West, I am excited for what this new opportunity will bring for our customers, our employees and our longstanding community partners. Bank of the West’s presence in many of the largest and fastest growing markets in the U.S. provides an ideal and complementary commercial and retail banking platform to fuel BMO’s growth. Combined with BMO’s suite of products and capabilities we’ll be able to help even more customers achieve real financial progress.”
Conclusion
Over the past year, shares of Bank of Montreal have gained 36.2% compared with 7.9% growth of the industry.
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Currently, Bank of Montreal carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Of late, Canadian lenders have been showing interest in the U.S. banking markets. Banks in Canada are seeking to expand in the United States because of lack of robust growth potential in their own banking markets.
Moreover, there has been a rise in mergers and acquisitions in the United States. Particularly, U.S. banks have been engaging in consolidation efforts to counter the low-interest-rate environment along with heightened costs of investments in technology.
A few days ago, SVB Financial Group SIVB acquired a New York-based independent sell-side research firm, MoffettNathanson LLC, in a bid to continue with its efforts of expanding into technology investment banking.
Greg Becker, the president and CEO of SVB Financial, stated, “The MoffettNathanson team has built an incredible reputation as a leader in equity research. The addition of technology equity research is another important step in further solidifying our place as the essential partner to innovation economy clients. I’m proud to welcome the MoffettNathanson team to SVB and continue to strengthen the capabilities of our investment banking practice.”
United Bankshares, Inc. UBSI also announced the completion of its merger deal with Community Bankers Trust Corporation. This June, United Bankshares entered an all-stock deal to acquire Community Bankers, the parent company of Essex Bank.
The buyout has brought together two high-performing banking companies. It bolsters United Bankshares’ position as one of the largest and best-performing regional banking companies in the Mid-Atlantic and Southeast. The combined entity will now operate across 250 locations in opportunistic markets in the United States.
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