5 Years After the Crash – BMO is Expanding its Reach
By Karen Thomas - September 26, 2013 | See also: BMOBMO
We’ve been looking at how the Canadian banks
have evolved since the financial crisis erupted 5 years ago. Today’s
focus is on the Bank of Montreal (TSX: BMO, NYSE:BMO).
With total assets of $549 billion, the Bank of Montreal is the fourth largest Canadian bank. Back in 2008, BMO was heavily involved in securitized products and accordingly, was forced to record a $1.33 billion provision for credit losses. Only CIBC suffered greater write-downs and losses during that time. However, BMO managed to schluff off this seemingly glancing blow and since its stock price has fared quite well, posting a 5-year return of over 75%.
What’s changed?
Traditionally regarded as more of a commercial bank than its peers, BMO has spent the last few years building out its retail lending platform and wealth management operations.
As well, the bank is focused on increasing its international presence, and has made acquisitions in the United States, London, and Hong Kong.
In 2008, BMO bought Pyrford, a London-based developed equity markets active manager. In 2011, it completed the acquisition of Lloyd George Management, an emerging markets specialist based in Hong Kong, as well as the $4.1 billion acquisition of Marshall&Ilsley, a U.S.-Midwest based banking group.
In 2012 it acquired a 20% stake (the maximum permitted by a foreign investor) in Cofco Trust, a subsidiary of one of China’s largest state-owned enterprises that is involved in agriculture and financial services.
BMO has long had a presence in China, stretching back decades, and is the only Canadian bank with an established bank in China. BMO now intends to expand its asset management capabilities and is planning to build an investment platform to offer its investment products to Asian clients.
The plan is to develop a listing of exchange traded funds (ETFs) for the Asian market by 2014, as the bank is trying to replicate the success it had with its ETF strategy in Canada.
In the United States, Harris Bank has been a consolidator and the crisis led to even more opportunities. The 2011 acquisition of Wisconsin-based lender Marshall & Ilsley, has resulted in a doubling of deposits and branches in the U.S.
The acquisition was Bank of Montreal’s largest in its 195-year history and doubled the size of its Harris Bank unit. As a result of this acquisition, BMO has almost as large a position in the US as in Canada.
It doubled BMO’s “wealthy” U.S. client base to approximately 240,000, bringing further scale to its operations in this area. In the latest quarter, profit at the firm’s private client group, which includes insurance and mutual funds, doubled to C$218 million from a year earlier on an increase in assets under management (AUM).
The following chart breaks down net income at the bank by segment, and with the changes that are expected going forward, we can expect this breakdown to look very different in the coming years.
The company expects that BMO’s wealth management business will grow
to more than $300 billion, from the current $130 billion, over the next
three and a half years as the company benefits from its geographic
reach. Asset management is a key focus for BMO.
Bottom Line
So we can see that while the crisis negatively impacted BMO, the bank was able to survive, bounce back and has embarked on a course that it thinks will see it thrive in future years. This is another success story and testament to the strength of the Canadian banks.
With total assets of $549 billion, the Bank of Montreal is the fourth largest Canadian bank. Back in 2008, BMO was heavily involved in securitized products and accordingly, was forced to record a $1.33 billion provision for credit losses. Only CIBC suffered greater write-downs and losses during that time. However, BMO managed to schluff off this seemingly glancing blow and since its stock price has fared quite well, posting a 5-year return of over 75%.
What’s changed?
Traditionally regarded as more of a commercial bank than its peers, BMO has spent the last few years building out its retail lending platform and wealth management operations.
As well, the bank is focused on increasing its international presence, and has made acquisitions in the United States, London, and Hong Kong.
In 2008, BMO bought Pyrford, a London-based developed equity markets active manager. In 2011, it completed the acquisition of Lloyd George Management, an emerging markets specialist based in Hong Kong, as well as the $4.1 billion acquisition of Marshall&Ilsley, a U.S.-Midwest based banking group.
In 2012 it acquired a 20% stake (the maximum permitted by a foreign investor) in Cofco Trust, a subsidiary of one of China’s largest state-owned enterprises that is involved in agriculture and financial services.
BMO has long had a presence in China, stretching back decades, and is the only Canadian bank with an established bank in China. BMO now intends to expand its asset management capabilities and is planning to build an investment platform to offer its investment products to Asian clients.
The plan is to develop a listing of exchange traded funds (ETFs) for the Asian market by 2014, as the bank is trying to replicate the success it had with its ETF strategy in Canada.
In the United States, Harris Bank has been a consolidator and the crisis led to even more opportunities. The 2011 acquisition of Wisconsin-based lender Marshall & Ilsley, has resulted in a doubling of deposits and branches in the U.S.
The acquisition was Bank of Montreal’s largest in its 195-year history and doubled the size of its Harris Bank unit. As a result of this acquisition, BMO has almost as large a position in the US as in Canada.
It doubled BMO’s “wealthy” U.S. client base to approximately 240,000, bringing further scale to its operations in this area. In the latest quarter, profit at the firm’s private client group, which includes insurance and mutual funds, doubled to C$218 million from a year earlier on an increase in assets under management (AUM).
The following chart breaks down net income at the bank by segment, and with the changes that are expected going forward, we can expect this breakdown to look very different in the coming years.
|
Segmented Net Income
| ||||
|
2012
|
2008
| |||
|
$mlns
|
% of total
|
$ mlns
|
% of total
| |
| Cdn P&C Banking |
1,784
|
47.3%
|
1,153
|
48.3%
|
| US P&C Banking |
517
|
13.7%
|
242
|
10.1%
|
| Private Client Group |
524
|
13.9%
|
426
|
17.8%
|
| BMO Capital Markets |
948
|
25.1%
|
568
|
23.8%
|
| Corporate Services |
342
|
9.1%
|
(411)
|
nm
|
Bottom Line
So we can see that while the crisis negatively impacted BMO, the bank was able to survive, bounce back and has embarked on a course that it thinks will see it thrive in future years. This is another success story and testament to the strength of the Canadian banks.
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