- Key insight: BMO is planning to sell its transportation and vendor finance businesses to Stonepeak, an alternative investment firm in New York City.
- What's at stake: The decision to divest the businesses, which include loan portfolios in the U.S. and Canada, is the latest action by BMO to free up capital and focus on core growth businesses.
- Forward look: The pending sale is expected to close during the bank's fourth quarter, which ends on Oct. 31.
BMO Financial Group is selling its transportation and vendor finance businesses, a decision meant to free up capital and allow the bank to invest in areas with higher growth potential.
The Toronto-based company said it has signed a definitive agreement with Stonepeak, an alternative investment firm based in New York, in a deal that includes loan portfolios in both the U.S. and Canada, for an undisclosed price.
BMO isn't entirely exiting the transportation and vendor finance businesses. It said it would use some of the deal's proceeds to acquire a roughly 19.9% equity interest in the businesses post-closing.
The cash transaction, which was announced Monday, includes an additional payment from BMO to Stonepeak if the buyer achieves certain performance targets after the deal closes.
That setup will likely be a benefit for BMO, Mario Mendonca, an analyst at TD Securities, wrote Tuesday in a research note. He viewed the deal "primarily as a capital optimization maneuver," one that will reduce BMO's risk-weighted assets density "while still allowing the bank to participate in the portfolio's net earnings from the retained … minority stake."
The pending sale comes nearly a year after BMO took steps to restructure its balance sheet by
BMO's target for return on equity in the U.S. banking business is 12%. That metric came in at 7.9% for the quarter ending Jan. 31.
"This transaction is consistent with BMO's focus on delivering sustained profitable growth, and enables us to invest in areas that deliver the full power of BMO to our clients," Aron Levine, BMO's U.S. president, said Monday in a press release. "We're allocating capital to areas with strong potential for long-term value creation while obtaining an equity interest in future income of the transportation and vendor finance businesses through a more capital efficient structure."
BMO's transportation finance business provides loans for trucks and trailers, primarily through dealer-managed relationships, according to the release. The vendor finance business provides equipment financing through original equipment manufacturers and their dealer networks.
BMO
The combined loan and lease portfolio of the transportation and vendor finance businesses totaled about CAD $14.5 billion, as of March 31, BMO said. Pending regulatory approval, the deal is expected to be finalized during the bank's fourth quarter, which ends Oct. 31.
The sale is expected to improve BMO's common equity Tier 1 ratio by around 28 basis points, since the company will have fewer risk-weighted assets, the bank said. That ratio was 13.1% as of Jan. 31.
BMO said it expects to record a net after-tax charge of approximately CAD $900 million, largely related to goodwill, for the bank's third quarter, which ends July 31. The charge will be reported in the corporate services segment, and it will be treated as an adjusting item, the bank said.
BMO has been shaking up its U.S. operations in the aftermath of its acquisition of San Francisco-based Bank of the West in 2023. A year ago, it
Seeking greater density in California, BMO is planning to boost its branch count in the Golden State by 50% in the next five years by
Also over the next five years, BMO expects to open roughly 15 new branches in Arizona.
