BMO Financial Group is finally moving out west.
Now that the Canadian bank has received U.S. regulatory approval for its $16.3 billion purchase of Bank of the West, the focus will now shift to integrating its Midwest-heavy franchise with the West Coast-centered footprint of the bank it's acquiring.
Bank of the West CEO Nandita Bakhshi could help smooth that process. Bakhshi will join the board of directors of BMO's U.S. holding company when the deal closes, the Canadian bank said. She will also serve as a special advisor on integration to BMO's leadership team.
After the Federal Reserve and the Office of the Comptroller of the Currency gave the green light on Tuesday, BMO said it expects the deal to close on Feb. 1, and for the systems conversion to be completed in early September.
BMO, the parent company of Bank of Montreal, has vowed to keep open all of Bank of the West's branches and to retain the San Francisco bank's front-line branch workers. Bank of the West, which has a total of 9,300 employees, has been owned since 1979 by the French banking giant BNP Paribas.
For BNP Paribas, the sale of Bank of the West represents a retreat from the U.S. retail banking market. But the Paris-based bank said Wednesday that it has a long-term presence in the United States.
CEO Jean-Laurent Bonnafé said in a statement that the French company will continue to consolidate and to further develop its corporate and institutional banking franchise, which serves multinational clients.
"BNP Paribas' set up in the United States remains a strategic pillar for its development," Bonnafé said.
The Bank of the West deal will make Toronto-based BMO the 15th-largest bank in the U.S., with consolidated assets totaling $286.8 billion.
The acquisition will nearly double BMO's U.S. footprint, adding 500 branches and 1.8 million customers, with around three-quarters of the deposits located in the competitive California marketplace. It will also extend the bank's presence in states including Arizona, Colorado, New Mexico and Oregon.
To secure U.S. regulatory approval, BMO agreed in November to a five-year, $40 billion
In December, in order to win Canadian regulators' approval for the deal, BMO was forced to sell $2.33 billion in equity to increase its capital levels as a result of higher required capital buffers across the banking industry.
Analysts said they are watching to see the merger's impact on BMO's deposit and lending franchises over the coming months, as well as on whether revenue and expense efficiencies materialize.
"This is a significant deal that sets BMO on a strong course for being a formidable U.S. banking competitor," said Ebrahim Poonawala, an analyst at Bank of America Merrill Lynch.
Poonawala said in an interview that the deal will be "transformational" in diversifying BMO's U.S. footprint while providing a lower cost of funding, including the large deposit base in California. BMO has said that
Since the acquisition was announced in December 2021, Bank of the West's deposits have been declining, while BMO Financial has signaled that it is targeting high single-digit U.S. loan growth, according to Scott Chan, an analyst at Canaccord Genuity.
"Investors will be watching the traction on this over the coming quarters," Chan said.
Chan added that he is also watching to see whether BMO can achieve a better efficiency rating over the next two years.
"Over the last decade, through acquisitions and organic growth, BMO has been able to reduce its efficiency ratio by a substantial amount up to this point," Chan said.
