To add new firepower to its business mix, Bank of Montreal has reached a deal to acquire one of the world’s oldest wealth management firms.
Canada’s fourth-largest lender is buying U.K.-based F&C Asset Management PLC for $1.3-billion just a day after first announcing an offer for the fund firm. A takeover by BMO will immediately boost the bank’s small, but growing, wealth management platform outside of Canada.
With a rich history and £90-billion ($166-billion) in assets under management, F&C is a well-known name across the Atlantic Ocean. However, the storied firm is in the midst of a restructuring as it struggles to stanch fund outflows and copes with an expensive debt burden, allowing BMO to swoop in and buy it on the cheap.
A U.K. foray for BMO would come after the bank’s rivals struck similar wealth management deals abroad. In 2010, Royal Bank of Canada inked its own billion-dollar U.K. wealth management deal, while both Toronto-Dominion Bank and Canadian Imperial Bank of Commerce recently nabbed U.S. wealth management acquisitions.
Wealth management is a hot sector for Canadian banks. As developed markets recover from the crisis, investors have more reason to put their savings back into play. The more money these firms manage, the more fees they earn. Asset managers are also relatively safe acquisition targets because their revenues are fee-based, so they don’t chew up much bank capital.
BMO is keen on expanding in wealth management after investing heavily in its own suite of products, particularly low-cost exchange-traded funds. The endeavour is quickly paying off, with the bank’s earnings from wealth management jumping 59 per cent in 2013 from the year before.
Any extra wealth management earnings will only help the bank offset slower growth from its U.S. retail banking arm, where earnings took a hit in the fourth quarter and where revenues are starting to fall.
While a U.K. deal may seem like a stretch for BMO, chief executive officer Bill Downe recently told a crowd of investors that few people appreciate what the bank has been doing in wealth management around the world.
BMO has consistently invested abroad since the downturn, and “the businesses that we have in Europe, the distribution of wealth that we have now in the Middle East, the strength of the business in mainland China and Hong Kong, in Singapore, all tie into a much better global wealth platform than I think many people appreciate,” he said at a conference in Toronto.
Mr. Downe also noted that wealth management will continue to be a focus for his bank, particularly as Canadians slow their borrowing at home, limiting growth in the retail banking business.
However, it could take time for F&C to have a meaningful impact on BMO’s bottom line. Fifty-seven per cent of assets under its watch belong to strategic partners, such as pension funds and insurers who outsourced some of their investing duties. Many of these firms now want their money back, either because they prefer to manage the funds in-house, or their governments are forcing them to repatriate the money.
High-profile clients withdrawing funds include insurer Friends Life, which was once a £27.5-billion client for F&C, amounting to roughly a quarter of its assets under management, as well as a Portuguese pension mandate. F&C is struggling with debt, some of which carries a 9-per-cent interest rate and comes due in 2016.
BMO declined to comment Monday, but jointly confirmed with F&C its offer would be worth 120 pence.
Source: The Globe and Mail