BMO Financial Group, and its indirect wholly owned Chicago-based subsidiary BMO Harris Bank announced the signing of a definitive agreement with BNP Paribas to acquire Bank of the West and its subsidiaries, with assets as of Sept. 30, 2021, of approximately $105 billion. This acquisition aligns with BMO's strategic, financial and cultural objectives.
Under the terms of the agreement, BMO will acquire Bank of the West for a cash purchase price of $16.3 billion, or $13.4 billion net of estimated $2.9 billion of excess capital (at closing) at Bank of the West. BMO will fund the transaction primarily with excess capital reflecting its strong capital position and anticipated capital generation.
Founded in 1874, Bank of the West has a strong track record of serving retail, small business, commercial and wealth clients. With the combination of two highly complementary geographies and building upon BMO's digital, data and analytics capabilities, this acquisition enables contiguous market extension, the acceleration of BMO's commercial banking expansion and highly competitive scaled entry into California.
On closing, the acquisition will bring nearly 1.8 million customers to BMO and will further extend its banking presence through 514 additional branches and commercial and wealth offices in key U.S. growth markets. Post-closing, BMO will have a strong position in three of the top five U.S. markets, a footprint in 32 states, expanded national specialty commercial businesses and a digital banking platform gathering deposits in all 50 states. With approximately 70 percent of Bank of the West's deposits in California, BMO is making a scaled entry to a market with a population of approximately 40 million people producing $3.1 trillion of GDP – which, if considered as a country, would rank as the world's fifth largest economy.
"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," said Darryl White, Chief Executive Officer, BMO Financial Group.
"We will deliver a highly competitive offering to new growth markets, combining the strength of our digital banking platform and a strong team of bankers to generate leading customer growth."
"Breaking down barriers to inclusion is a driving force for both banks – it's a commitment central to BMO's Purpose, to Boldly Grow the Good in business and life. Both BMO and Bank of the West have achieved "Outstanding" Community Reinvestment Act ratings, supported by robust commitments to investing in our communities. We'll be well-positioned to support the communities we serve and to help our customers make real financial progress," concluded White.
"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," said David Casper, Group Head, North American Commercial Banking and U.S. Chief Executive Officer, BMO Financial Group. "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. It's also a great opportunity to build upon our strong track record of engaging with communities where we operate."
"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. Our team of dedicated commercial and business bankers will be a great fit with BMO, working on creative solutions to match individual needs," said Bank of the West CEO Nandita Bakhshi.
Transaction Highlights
The transaction is expected to be immediately accretive on closing to BMO's adjusted earnings per share and over 10 percent accretive in 2024, including estimated cost synergies. The estimated internal rate of return is approximately 14 percent. The purchase price is estimated at 1.5 times Bank of the West's expected tangible common book value based on the estimated balance sheet at close. BMO expects to incur pre-tax merger and integration costs of approximately $1.32 billion and achieve pre-tax cost savings of approximately $665.9 million, or 35 percent of Bank of the West's non-interest expenses, through operational efficiency improvements with 100 percent of the cost savings executed by the end of the first year after closing.
The acquisition adds approximately $56 billion of loans and $89 billion of deposits based on Bank of the West's Sept. 30, 2021, balance sheet. BMO expects to take a gross credit mark of $768 million, or 126 bps of loans and reflect a $168.9 million fair value mark (write-down of equity), both of which will be accreted into adjusted earnings.
BMO expects to fund the transaction primarily through excess capital on the combined entities balance sheet at closing, including an estimated $2.94 billion from Bank of the West and $10.45 billion from BMO, which includes the benefit from the sale of BMO's EMEA asset management business and internal capital generation to the estimated closing date. In addition, BMO intends to introduce a 2 percent discount on shares issued under its dividend reinvestment plan (DRIP) and expects to raise approximately $2.1 billion of common equity prior to the closing date. BMO is committed to maintaining its target capital ratios and regular dividends within its target payout range. BMO will not proceed with establishing a normal course issuer bid and does not expect to repurchase shares prior to close.
A signature strength of the Bank of the West is the deep relationships formed between their employees, their customers and the communities they have served for over 100 years. As part of this transaction, BMO does not plan to close Bank of the West branches, is committed to retaining front-line Bank of the West branch employees, and enabling career development opportunities throughout BMO's North American footprint.
BMO and BNP Paribas will enter into a long-term distribution agreement for the provision of Equipment Finance and Cash Management solutions to BNP Paribas' customers in North America.
The transaction, which has been approved by the BMO and BNP Paribas Boards of Directors, is expected to close by the end of calendar 2022, subject to customary closing conditions, including regulatory approvals. Upon closing, BMO intends to merge Bank of the West into BMO Harris Bank N.A.
Advisors
BMO Capital Markets and Morgan Stanley & Co. LLC acted as financial advisors and Wachtell, Lipton, Rosen & Katz and Osler, Hoskin & Harcourt LLP acted as legal counsel to BMO.