Canada’s second worst performing bank by stock price, but top four by assets, made daring investments into US banks in 2011. Last July Bank of Montreal bought Marshall & Ilsley Corporation, based out of Wisconsin, and witnessed massive earnings from the investment. More savings and growth could be underway.
At $4 billion the deal was the largest acquisition in Bank of Montreal’s (BMO) 195-year history. The company now has more locations in Chicago than Toronto. BMO is looking to rake in $1 billion in profit from US markets, five times more than what they pulled in during 2010. BMO has 12 million customers in total.
A Well Traveled Path
Canadian law does not allow major banks to merge so they must look for expansion elsewhere. In an effort to circumvent these limitations, BMO combined Marshall & Ilsley with another Midwest bank and put it all under the umbrella of BMO Harris Bank.
BMO has sought to grow internationally, and has plans to expand under the BMO Harris name across major cities in the Midwest.
The strategy worked out well for Toronto-Dominion Bank (TD), Canada’s second largest bank, which currently has more branches in the US than in Canada, and set record profits last quarter.
As of April 30, BMO operates 672 branches in the US (nearly 900 in Canada), with the second most deposit shares of any bank in Illinois, and the most in Wisconsin. The acquisition nearly doubled BMO branches prior to the deal. By branch count, BMO Harris is number 3 in the Midwest behind JP Morgan (JPM) and US Bancorp (USB).
Contraction and Expansion
Following the purchase of Marshall and Ilsley, BMO has announced they will shut down 28 Harris branches. This consolidation will take away any overlapping locations, and hopes to make them more efficient and cost effective.
Target cities for expansion in the Midwest are Chicago, Indianapolis, Minneapolis, St. Louis, and Kansas City.
Business Section: Investing Ideas
Bank of Montreal is following a similar business plan as TD Bank. TD has seen substantial profits come out of its US branches. Success in the US for BMO is imperative as it looks to make a better name for itself here than it has in Canada.
BMO current has a “Hold” rating (provided by Zacks), but the stock is undervalued $10 from its target price. Do you think they are poised to take the Midwest banking market by storm?
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Written by Ryan Horch