As Marshall & Ilsley Corp. prepares to reap $1.67 billion from a planned spinoff this year of its technology unit, Metavante Corp., observers are eager to learn its plans for the windfall.
Greg Smith, the $58.3 billion-asset Milwaukee company's chief financial officer, said Wall Street should not expect a major overhaul of its capital plan.
M&I does not plan to accelerate its dealmaking or change the size of companies it targets, Mr. Smith said. It will rethink the pace of its start-up strategy and buy back more of its shares — something it has not done on a large scale in seven years.
"Since 2000 we have not been in much of a position to repurchase shares, and with this we will be able to engage in repurchases," he said in an interview last week. "The most important part of this is the capital doesn't change how we look at investing in our business, and it doesn't change how we look at acquisitions. I know you're looking for something that's a big change or big proclamation, and I don't really have that for you."
M&I probably will step up the pace of branch openings, but it has not decided by how much yet, Mr. Smith said. It typically opens up to 15 branches a year.
Anthony R. Davis, an analyst with Stifel, Nicolaus & Co. Inc., wrote in a research report issued last week that he expects M&I to open more branches, but probably not more than 25 a year, "because of the inability to recruit sufficient banking talent" in the company's markets.
M&I completed two accelerated buybacks in the first half, when it repurchased $294.5 million of stock, or roughly 2.5% of the outstanding shares. It repurchased just 0.2% of its outstanding stock last year.
Mr. Smith said he could not give details on future repurchase plans, but Mr. Davis wrote in his report that he expects M&I to use the capital from the Metavante spinoff to repurchase at least 5% of its shares.
"Considering the turmoil throughout banking today, this is an opportune time to have such an abundance of interest-free funding," he wrote.
M&I plans to spin off Metavante next quarter through a "sponsored spin" transaction. The private-equity company Warburg Pincus LLC has agreed to pay $625 million for a 25% stake, and the rest of the shares would be issued to M&I shareholders. Metavante would also pay $750 million in a special dividend to M&I as part of the deal.
M&I has been acquisitive in recent years, though at a measured pace, and Mr. Smith said that it expects to continue on that path.
"You have to weigh the capital generation and the capital creation from the separation with just what a good reasonable integration time line of transactions" would be, he said. "You have to be pretty methodical to make sure you get the right cultural integration and the right conversions with these types of acquisitions, and then, frankly, we'll see what the overall market for acquisitions presents."
David J. Long, an analyst with William Blair & Co. LLC, said in an interview Tuesday that M&I's succession of recent deals have worked, because they have been small relative to the size of the company.
"I think the acquisition pace they've had is fine, as long as they stick to bite-sized acquisitions," Mr. Long said. "None of the banks they have acquired are transforming acquisitions." (His firm does investment banking work for M&I.)
Since the beginning of last year M&I has bought or made deals for seven banking and wealth management companies.
In April it completed its $217 million purchase of United Heritage Bankshares of Florida Inc., an $751 million-asset Orlando company. In July, M&I bought the $633 million-asset Excel Bank Corp. of Minneapolis, and it has a $529 million deal to buy First Indiana Corp. of Indianapolis that is expected to close late this year or early next year.
M&I's largest purchase in the last several years was its acquisition of the $4 billion-asset Gold Banc Corp. Inc. of Leawood, Kan., in April of last year. Mr. Smith said his company has no plans to scout for a larger deal.
"We still really look at the Gold Banc acquisition as a large deal for us, so I don't look at … the new capital as driving us to do bigger deals," he said.
Though M&I has bought companies outside Wisconsin to reduce its reliance on its home state, Mr. Davis wrote that he does not expect the company to use its capital infusion to expand into new regions. "We would not expect expansion into California, the Northeast, or Chicago, for that matter," he wrote. Mr. Smith said the company has no plans to enter California or the Northeast. Mr. Davis also expects the percentage of net income M&I generates from its Wisconsin banking operations to climb to 50%, from about 40% currently. Its banking operations elsewhere should continue to contribute about 30% once Metavante is removed from the equation, he wrote.
To help make up for Metavante, which generates about 20% of M&I's profits, Mr. Smith said the company will look to its wealth management unit to increase its contribution from around 5% to about 10%. The rest of the shortfall should be made up from a combination of correspondent banking and its national consumer business, he said. "Over time we would expect the Wisconsin banking and the non-Wisconsin banking component to come into balance."
