BMO agrees to buy BNP Paribas' Bank of the West for $16.3 billion

Bank of Montreal agreed to buy BNP Paribas SA’s Bank of the West unit for $16.3 billion, extending its presence in key U.S. growth markets and giving the French lender a windfall before its new strategic plan.BMO will fund the transaction, which should add 1.8 million customers upon closing next year, in cash and mainly with excess capital, according to a statement on Monday.

Bloomberg had previously reported the Canadian bank’s interest.For BMO, the transaction -- its largest acquisition ever -- extends its retail footprint into the western U.S. while also bulking up its already-sizable commercial business.  

The bank, Canada’s fourth-largest by assets, already has a significant presence throughout the Midwest U.S. from its acquisition of Harris Bankcorp in the 1980s and a takeover of Marshall & Ilsley a decade ago.BNP Paribas will use proceeds from the sale for stock repurchases, investments and bolt-on deals, the Paris-based bank said.  

The deal will generate a net capital gain of about 2.9 billion euros ($3.3 billion) and add about 170 basis points to the lender’s CET1 ratio. BNP plans to make an extraordinary distribution to shareholders via a buyback to compensate for diluted earnings per share.  

That could be around 4 billion euros, it said. BNP expects to deploy a further 7 billion euros through organic growth, technology investments and bolt-on acquisitions.The French bank gained as much as 1.6% in early Paris trading and was up 0.8% as of 9:05 a.m.The transaction adds to a series of exits from U.S. banking, as foreign lenders take advantage of regional banks’ thirst for deals in their ambition to compete with the retail businesses of Wall Street giants. In 2020, Banco Bilbao Vizcaya Argentaria SA sold its U.S. banking operations for $11.6 billion, followed this year by MUFG Bank NA, which sold its U.S. franchise for $8 billion. 

This acquisition will add meaningful scale, expansion in attractive markets, and capabilities that will enable us to drive greater growth, returns and efficiencies,” BMO Chief Executive Officer Darryl White said in the statement.U.S. bank valuations, already inflated by the current wave of consolidation, have also got a boost from the U.S. Federal Reserve’s hawkish pivot aimed at reining in inflation.  

In Europe, meanwhile, banking consolidation has been on ice as regulatory capital requirements and market fragmentation make many deals unattractive. BNP’s 900-million euro share buyback program ended in December and the bank is due to update targets and potentially announce new capital return plans early next year. Italy’s UniCredit SpA saw its shares jump earlier this month after Chief Executive Officer Andrea Orcel announced a huge new buyback program.