Bank of Montreal has agreed to buy GE Capital's transportation finance unit, boosting the Canadian lender's U.S. commercial banking business and adding one more Canadian name to the list of buyers for GE Capital's assets.
"Given our strong capital position, we had the flexibility to take advantage of this unique opportunity to grow our commercial customer base," said Bill Downe, BMO's chief executive officer.
BMO will be acquiring the largest financier to the commercial truck and trailer segment in North America. It has loan and lease assets of $8.7-billion (U.S.), about 90 per cent of which are in the United States, 600 employees and 15 offices in the United States and Canada.
Although a purchase price wasn't disclosed, BMO said that no stock offering would be required to fund the purchase – which is consistent with remarks that Mr. Downe made at the Scotiabank Financials Summit on Wednesday, when he said that the bank could easily fund a large acquisition.
BMO estimates that the deal, which is expected to close in the bank's fiscal first quarter of 2016, will boost its adjusted profit by 3 per cent.
The transaction "brings an industry leader into the BMO fold that has been built on strong industry knowledge, disciplined underwriting, superior technology and long-standing, diverse customer relationships," David Casper, chief executive officer of BMO Harris Bank, BMO's U.S. arm, said in a statement.
The deal also fits in with a trend that has seen Canadian banks add higher-yielding assets to their product mix as they deal with a low-interest rate environment and sluggish growth in retail loans.
Bank of Nova Scotia has been expanding its credit card offerings, for example. In 2010, Toronto-Dominion Bank paid $6.3-billion for Chrysler Financial Corp., raising its exposure to auto financing.
Previous to the GE deal, BMO acquired Marshall & Ilsley Corp. in 2011 for $4.1-billion (Canadian) and UK-based investment manager F&C Asset Management PLC in 2014 for $1.3-billion.
The deal with GE Capital will raise BMO's transportation loans to 4.5 per cent of its overall loan portfolio, up from just 1 per cent before the deal.
As part of the deal, though, Tom Flynn, BMO's chief financial officer, said that the bank will reduce its U.S. personal and commercial auto lending portfolio over the next few years.
"The yields on the indirect auto portfolio are lower than on the acquired portfolio, and so we view this as an attractive repositioning of the balance sheet," Mr. Flynn said.
BMO has been expanding its commercial banking operations in the United States in recent years. Mr. Casper noted that the bank has reported 13 consecutive quarters of double-digit growth in its loan portfolio, including 13 per cent growth in the third quarter.
BMO's U.S. personal and commercial banking unit reported operating profit growth of 15 per cent in U.S. dollar terms in the third quarter, year-over-year, or 36 per cent when translated into Canadian dollars.
General Electric Co. has been shedding most of the financial assets in its GE Capital unit as it focuses on industrial manufacturing, and a number of Canadian players have been showing interest.
In June, Canada Pension Plan Investment Board announced a $12-billion deal to acquire GE's private-equity lending arm, as the conglomerate shed assets. Also that month, Element Financial Corp. said it would buy GE's fleet management operations.