BMO energy defections in Houston will burn – but not linger

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It looks bad on paper. A team of 15 energy banking specialists working for BMO Nesbitt Burns Inc. in Houston is suddenly leaving for a rival firm.

On Tuesday, word got out that the bankers, who specialize in energy acquisitions and divestitures are heading to a global investment bank. In one clean shuffle, managing director Miles Redfield is taking 15 people to UBS AG, helping the Swiss firm build a U.S. energy practice.

BMO has focused on expanding its mid-market investment banking business south of the border, and last year the U.S. capital markets business made $253-million in profit.

No doubt, the departures will sting, considering the investment bank hired Mr. Redfield's then-seven-person team in 2009 to expand its U.S. energy footprint. One energy downturn later and he's gone, leaving a hole for BMO in Houston.

But the BMO banker exodus in Houston may not be a death blow to its broader capital markets business. News of Mr. Redfield's departure barely registered in Calgary, which suggests the team wasn't on many peoples' radar in Canada. The U.S. mergers and acquisitions league tables support that sentiment – BMO's U.S. energy practice ranked 20th last year, behind RBC Dominion Securities and Scotia Capital, and 28th the year before.

The size of the departing team – 15 people – can also be a bit misleading. A considerable number of them are junior bankers, not relationship managers. Also worth noting: BMO has roughly 1,100 people in its U.S. capial markets arm, and in total, energy M&A comprises a small percentage of its total capital markets revenues – in the low-single digits, according to figures provided on a conference call in December.

To be clear, that doesn't mean that BMO walks away unscathed. The energy investment banking business is going increasingly global, because fewer deals are completed by buyers and sellers in the same country, so top advisers need offices in multiple countries.

However, BMO argued this will not be a major setback. "We have a strong energy business with a talented team of global bankers," the bank wrote in a statement. "This is a small group who will be replaced."

At the moment, BMO has energy bankers based in Calgary and London.

The departure comes during a rough patch for energy deal making because oil and gas prices remain in the gutter, which has made boards of directors nervous about the future. Although some energy companies would love to sell assets to raise cash, there aren't a lot of buyers, and that has made it tough for advisers to find work.

UBS, which declined to comment, is swooping in during this downturn, buying a team outright in a bid for critical mass from the get go, instead of luring new recruits one-by-one.