Toronto-Canada based Bank of Montreal BMO is expanding its presence in the transport finance business. The bank announced a deal with General Electric Company GE for acquiring the latter’s transportation finance business in the U.S. and Canada.
Though financial terms of the deal were not disclosed, Bank of Montreal stated that the acquired unit’s net earning assets totaled roughly C$11.5 billion ($8.7 billion) as of Jun 30, 2015.The purchase price will depend on the net earning assets at the time of closing plus a premium.
Bank of Montreal will fund the deal through its existing balance sheet liquidity, additional deposits and wholesale funding, which displays a strong capital position. Additionally, the deal will be immediately accretive to its adjusted earnings and add 3% to adjusted net income. Further, the acquisition will have an estimated impact of approximately 70 basis points on the company’s Basel III Common Equity Tier 1 ratio.
Based in Irving, TX, GE Capital's Transportation Finance operation provides wholesale and commercial end-user financing to original equipment manufacturers, dealers and end users for heavy-and medium-duty commercial trucks and trailers. The unit, with 11 offices in the U.S. and 4 in Canada, employs nearly 600 workers (to be retained by Bank of Montreal).
Notably, the transaction, subject to satisfaction of antitrust clearance and certain other customary closing conditions, is expected to close by Jan 31, 2016. Following the completion of the deal, GE Capital's Transportation Finance business will be integrated with Bank of Montreal’s wholly owned subsidiary, BMO Harris Bank N.A.
David Casper, President and CEO of BMO Harris Bank, said, “This transaction plays to our strength in commercial banking across North America. It brings an industry leader into the BMO fold that has been built on strong industry knowledge, disciplined underwriting, superior technology and long-standing, diverse customer relationships.”
Bank of Montreal’s move is in sync with its strategy to look abroad for expansion, so as to mitigate slower economic growth in domestic market. The company already boasts a strong presence in the U.S. Midwest region. In 2010, it had acquired Marshall & Ilsley Corp. of Milwaukee, which led to doubling of deposits and branches, and strengthened its commercial lending focus across the region.
For GE, the deal marks a step in right direction, as it is in the process of divesting its financial services business. Since April, the firm has announced a number of divestitures with an aim to focus on its industrial operations.
Some of GE’s major deals include sale of the U.S., Mexico, Australia and New Zealand fleet businesses to Canada’s Element Financial Corp.; private-equity-lending unit to Canada Pension Plan Investment Board; health-care finance division to Capital One Financial Corp. COF and an online bank to Goldman Sachs Group Inc. GS. With completion of the above-mentioned deal, GE will have sold nearly $85 billion of financial assets, remaining on track to shrink its banking business by $100 billion this year.
Currently, Bank of Montreal holds a Zacks Rank #4 (Sell), while GE carries a Zacks Rank #3 (Hold).
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