I was wondering your thoughts on BMO and its sale of branches to First Citizens Bank. What do you think of the transaction, any issues with BMO's credit quality (does this improve), is there an overhang on the stock with the pending deal and timing of the close. Overall - is BMO more attractive after this announcement and do you view it as a buy, sell or hold.
Financial terms of the deal were not disclosed. We would not consider it a hugely significant development either way. BMO has about 1,000 branches in the US, so it is about 14% of its exposure. But the sale is really a re-shuffle of States for BMO, not a sign of exiting the US. BMO plans to open 150 branches in the country in the next five years, mainly in California. We would not expect a material impact to the shares from this deal alone. The bank has ~3,000 Canadian branches so on a combined basis less than 4% of branches are being sold. The stock was weak yesterday on concerns about credit quality across the sector rather than this specific deal. We think BMO has the same attractions as before the deal. We think it is buyable, but it is one of the more expensive banks right now at 14X earnings. Considering the current credit concern, we think buyers have a bit of time here.