Bank Deals are Proving Profitable
NEW YORK ( TheStreet) -- Bank of Montreal's (ORCL) $4.1 billion acquisition of Midwestern lender Marshall and Ilsley is turning out to be a big earnings driver, proving the benefits of U.S. bank deals.
In Tuesday earnings, Bank of Montreal reported record first-quarter net income of $1.1 billion, or $1.65 a share, on a doubling of earnings at its U.S. operations (called BMO Harris Bank ), which was bolstered by the Marshall & Ilsley acquisition that closed in 2011. Profit at Chicago-based BMO Harris Bank more than doubled to $138.6 million -- from $54.6 million in the quarter -- on an earnings lift and a fall in U.S. loan loss provisions.
"Although it is early to declare that BMO has turned around
The acquisition of Marshall & Ilsley is the third largest bank deal in the last 24 months following Capital One's ING purchase and Toronto Dominion's (TD) $6.3 billion acquisition of Chrysler Financial , according to Bloomberg data.
U.S earnings and falling loan loss provisions at Bank of Montreal from its Marshall & Ilsley acquisition overshadowed its overall weak capital markets revenue. The deal also gives BMO a U.S. growth channel in consumer lending and wealth management that may be a hedge against a possible credit slowdown in the Canadian market.
Bank of Montreal's Marshall & Ilsley earnings lift may further prove the acquisition rationale of Capital One, which is closing in on its $9 billion acquisition of ING Direct . and First Niagara's HSBC U.S. bank branch acquisition .
Those acquisitions cut against a tepid overall market for bank consolidation in the U.S. Both bank's shares have benefitted from expectations of an earnings boost off of the acquisitions of U.S.-based assets previously held by European mega-banks. First Niagara shares are up over 10% year-to-date to $9.64, while Capital One shares are closing in on 20% 2012 gains after posting a 2011 stock gain that contrasted with sector weakness.
Capital One shares trade for 1.4 times tangible book value according to HighlineFI, and for eight times the consensus 2012 earnings estimate of $5.84, among analysts polled by Thomson Reuters. Meanwhile, First Niagara's shares trade for 1.3 times tangible book value, according to HighlineFI, and for 10 times the consensus 2012 EPS estimate of 87 cents.
The Federal Reserve recently approved Capital One's acquisition of ING Direct, giving insight into what it deems as a Too Big to Fail bank. In its approval, the Fed said it had also taken account Capital One's subsequent agreement to purchase HSBC's $30 billion U.S. credit card portfolio.