High prices for U.S. banks and the disadvantages inherent in de novo branching will make it difficult for other Canadian banks to expand in the United States, says Bank of Montreal chairman and chief executive Matthew C. Barrett.
In an interview Wednesday, Mr. Barrett said one of the U.S. market's main attractions for Canadian banks is the possibility of developing business with small and medium-sized companies.
But, he added, "If one wants to crack that market segment, acquisitions would be prohibitively expensive."
Interstate branching is also unlikely to help Canadian banks seeking to expand in the United States. "They may be musing over what possibilities U.S. branch banking might offer them, but I don't see how de novo retail branch banking can succeed, since it's failed almost everywhere in the world," Mr. Barrett said.
Building "a brand name and brand equity" in the United States through branch banking, he added, "could take forever."
Executives and spokespersons at other big Canadian banks refused to respond to Mr. Barrett's remarks.
Although several big banks, like Canadian Imperial Bank-of Commerce, Bank of Nova Scotia, and Royal Bank of Canada have voiced plans to expand international operations because prospects for growth in Canada are limited, none have so far chosen to follow Bank of Montreal's expansion into U.S. retail and middlemarket banking.
Canadian banks, hard hit by problems in their U.S. commercial real estate portfolios in the late 1980s and early 1990s, are also wary about resuming largescale lending to U.S. borrowers,
A spokeswoman for Toronto Dominion said her bank .had no plans to follow Bank of Montreal's strategy nor to be listed on a U.S. Exchange.
A spokesman for Canadian Imperial similarly said his bank has no plans to expand into the U.S. retail market nor for making U.S. acquisitions. Instead, he said, it is using New York as a base to build upa global capital markets operation.
"We're in the process of creating a global investment bank and that's really where our energies are focused," the spokesman said.
On Wednesday, Bank of Montreal was listed for trading on the New York Stock Exchange, becoming the first Canadian bank to formally list its shares in the United States.
The bank estimates that about 6% of its stock is currently held by U.S. investors and it hopes to increase that percentage.
"A significant portion of the bank's income comes from the United States and we would like to have a proportionate amount of U.S. shareholders from the' same constituency in which we do business," Mr. Barrett said.
The bank has built up a sizable presence here since it acquired Chicago-based Harris Bankcorp in 1984.
Last April, the Canadian bank purchased Chicago-based Suburban Bancorp in a stock swap deal valued at $246 million, or 2.4 times book value. The acquisition brought Hams' assets to about $15 billion.
Bank of Montreal has a total $95 billion in assets, making it Canada's fourth-biggest bank.
Mr. Barrett said the bank was unlikely to pay as much as it did for Suburban to acquire another U.S. bank. "We'll take good properties as they come up but we won't be paying 2.5 times book," he said. "Suburban was expensive and worth it, but it's not a precedent."
Branching in Illinois and across the Midwest will now likely be the main vehicle for expansion. "One has to build off a strong local franchise with strong local management," Mr. Barrett said.
Harris contributed $62 million to the $529 million the Bank of Montreal earned for the first nine months of this year. But the U.S. subsidiary's profits were down 33%, from $92.6 million for the first three quarters, of 1993, as a result of a one-time $33.4 million charge to cover mortgage-backed securities losses.
Mr. Barrett said the bank is continuing to retain its long-term goal of increasing earnings from the United States to 50% of net income, compared to the approximately 12% currently.
Over the next five to seven years, he said, Harris hopes to increase the number of retail customers to 1 million from its present 400,000 or so.
After that, he added, Hams will expand further by "island hopping" into the eight states around Illinois.
