Bank of Montreal is bidding $16.3 billion U.S. to acquire Bank of the West in what is being described as the biggest deal ever by a Canadian bank.
Bank of Montreal is proposing to buy U.S.-based Bank of the West from BNP Paribas SA. If successful, the acquisition will double Bank of Montreal’s retail presence in America and make it the fourth-largest North American commercial lender.
The purchase of San Francisco-based Bank of the West will give Bank of Montreal 1.8 million new customers, $105 billion U.S. in assets and an active presence in 32 American states.
The proposed deal is far bigger than the 1984 acquisition of Harris Bank that gave Bank of Montreal a foothold in the Chicago area and the takeover of Marshall & Ilsley a decade ago that allowed Bank of Montreal to expand into Wisconsin.
If approved by regulators, the deal would be the largest acquisition by a Canadian bank on record, topping Toronto-Dominion Bank’s $8.3 billion U.S. takeover of Commerce Bancorp in 2008.
Bank of Montreal is funding the cash transaction with $13.5 billion Cdn ($10.4 billion U.S.) in excess capital that it expects to have at closing, along with $3.8 billion Cdn in excess capital from Bank of the West and an issuance of about $2.7 billion Cdn in common shares.
The deal will boost adjusted earnings by 10% in fiscal 2024, helped by $670 million U.S. in cost savings, according to Bank of Montreal.
After the deal closes, the company expects to have a common equity tier one ratio -- a key measure of the bank’s loan loss-absorbing capacity -- of 11%. That’s well down from its current 13.7% ratio, though still above regulatory minimums. The bank is suspending share buybacks to help keep its cash position intact.
The deal will also improve Bank of Montreal’s commercial-banking operations, giving it greater exposure to sectors such as technology and vendor leasing.
Importantly, the Bank of the West acquisition would also give Bank of Montreal a significant branch and lending operation in California, which has a population similar to Canada’s but an economy that’s almost twice as large.
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