Ameriprise to Buy BMO Unit With $124 Billion in Client Funds

(Bloomberg) -- Bank of Montreal agreed to sell its Europe, Middle East and Africa asset-management unit to Ameriprise Financial Inc. for 615 million pounds ($847 million), marking Chief Executive Officer Darryl White’s biggest move yet to trim the bank’s portfolio of non-core businesses.

The sale includes the opportunity for some U.S. clients to move to Ameriprise’s Columbia Threadneedle Investments unit, subject to their consent, Toronto-based Bank of Montreal said in a statement Monday. The deal also will give Bank of Montreal’s North American wealth management clients access to a range of Columbia Threadneedle products.

White, who took the reins of Canada’s fourth-largest lender in 2017, said in January that BMO was looking to “harvest investments” in businesses where the returns weren’t good enough or where the bank didn’t see a path to a leadership position, and then redeploy that capital toward better opportunities. Increased competition on fees and a shift to passively managed investments have hampered profitability in the fund industry, prompting banks including Societe Generale SA and Wells Fargo & Co. to sell their asset-management operations.

Bloomberg News reported in October that BMO was exploring options for its asset-management operations, including seeking a buyer for parts of the business outside its home market.

The unit Bank of Montreal is selling consists mostly of the F&C Asset Management Plc business, which the lender bought for about C$1.3 billion ($1 billion) in 2014, Gabriel Dechaine, an analyst at National Bank of Canada, said in a note to clients. That acquisition, which predated White’s tenure as CEO, was a “questionable” deal and a “head scratcher at the time it was announced,” so reversing it is a positive move, Dechaine said.

Bank of Montreal said the deal won’t have a “significant” effect on its future earnings run rate but will improve its efficiency ratio, return on equity and common equity tier 1 capital ratio. The sale price is about 0.7% of the unit’s assets under management, which Dechaine said was “on the low side,” reflecting the division’s low profitability.

“A material boost to BMO’s capital ratios in exchange for a small hit to profits is a good trade-off, especially if BMO can redeploy the proceeds more efficiently down the road,” said Dechaine, who rates Bank of Montreal the equivalent of a buy.

Bank of Montreal was little changed at C$114.97 at 9:52 a.m. in Toronto, while Minneapolis-based Ameriprise rose 0.2% to $241.15 in New York.

Ameriprise said in a separate statement that the deal, expected to close in the fourth quarter, will give it an additional $124 billion of assets under management in Europe, bringing its total AUM to more than $1.2 trillion. The acquisition will accelerate Ameriprise’s strategy of growing its fee-based businesses and boost the overall contribution from wealth and asset management, the company said.

Bank of Montreal has weathered the Covid-19 crisis with strong results from its capital-markets unit, which has benefited from a surge in volatility and trading. And while increased provisions to protect against the possibility of rising defaults have weighed on overall earnings, the lender’s North American personal and commercial banking business has been helped by rising deposits and shrinking costs.

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