Though online investing is shrinking nationally, executives at Bank of Montreal say their company's deal to buy Credit Suisse First Boston's electronic brokerage unit is all about growth in U.S. private banking.
The $520 million CSFB Direct deal, announced Wednesday, goes beyond just expanding Bank of Montreal's online brokerage capabilities, they said. The company can turn CSFB Direct's one million online brokerage customers into a million private banking customers, they said, though more than half the CSFB accounts are inactive. And CEO Tony Comper said, "Our strategy is to grow in the United States."
"Clients have to be more than just direct investing clients. They have to have potential as full-service and private banking clients," said William Downe, deputy chairman of Bank of Montreal. "If we don't have prospects to sell more of our offerings to them, then we are just not that interested in that acquisition."
Gilles Oulette, the president and chief executive officer of Bank of Montreal's private-client group, said in a conference call Wednesday that the deal, which is expected to close in February, offers "a lot of private banking prospects."
"We not only acquired a business that is profitable in the short term," he said, "but they have a substantial client base in metropolitan areas that we wanted for private banking."
Mr. Oulette said Bank of Montreal's private banking group has units in Chicago, Florida, and Arizona. CSFB Direct has sites in New York, Chicago, Atlanta, Philadelphia, San Francisco, Dallas, Salt Lake City, Boca Raton, Fla., and Charlotte, N.C., and its headquarters in Jersey City.
Analysts said the deal has everything to do with Bank of Montreal keeping up with its Canadian competition.
"This deal is Waterhouse envy," one analyst said. "Bank of Montreal saw how successful Toronto-Dominion was in building their private banking capabilities with TD Waterhouse in the United States, and they said, 'We want one of those.' So they went out and bought CSFB Direct."
CSFB Direct is to be merged with the Bank of Montreal's Chicago-based Harris InvestorLine and renamed Harris Direct Investing.
The deal is Bank of Montreal's sixth in the United States in the past two years and its largest since the acquisition of Harris Bankcorp in 1984. It has bought two discount brokerage firms - Burke, Christensen & Lewis Securities of Chicago in December 1999 and Freeman Welwood of Seattle in September 2000 - and three banks, Village Banc of Naples, Fla., in August 2000; Arizona's Century Bank in December 2000; and First National Bank of Joliet, Ill., in July.
The CSFB Direct deal would boost the Toronto-based bank's U.S. client base by 50%, adding a million accounts, though only 467,000 are active. Mr. Downe said that, despite the inactive accounts, all on CSFB Direct's client roster have appeal as potential private banking customers.
"The nature of the clients themselves, the average size of their accounts, their personal income, their propensity for modern technology, and their age profile make these clients attractive private banking clients," Mr. Downe said. "These are people with a net worth beyond their brokerage accounts."
Jamie Punishill, a senior analyst at Forrester Research in Cambridge, Mass., said that though trading is down not everyone is abandoning online brokerage. Bank of Montreal, which has $149 billion of assets under administration, is taking advantage of Credit Suisse First Boston's cost-cutting to acquire an enticing beachhead, he said.
"CSFB Direct's clients are an attractive group," Mr. Punishill said. "They are wealthier than other" online brokerage customers. "CSFB Direct never chased after freakishly active money traders. Their customers look nothing like Ameritrade customers."
Mr. Comper, Bank of Montreal's chairman and chief executive, said it will keep doing what it can to build a "major" wealth management business in the United States.
"This is all part of our program of expansion," he said. "We are going to continue to look to grow selectively and substantially in the United States both through organic growth and through acquisitions. We are looking for like-minded partners."
