Bank of Montreal’s (BMO) move to sell its foreign asset management business is on strategy and will boost BMO’s bottom line, says Moody’s Investors Service.
In a research note, the rating agency said that BMO’s sale of its asset management operations for the EMEA region to Ameriprise Financial Inc. for £615 million ($1.1 billion) is a credit positive for the bank as it will add about 29 basis points to the BMO’s tier 1 capital, boost its return on equity and improve its efficiency ratio.
The transaction is also in line with BMO’s strategy to focus on wealth management in North America, “where it has scale and brand recognition advantages,” Moody’s said.
The report noted that BMO entered the European wealth management business in 2014 when it acquired F&C Asset Management for $1.3 billion in an effort to enhance “its European asset management capabilities, which would support profitability and attract new institutional mandates.”
Yet, Moody’s said that the business, which has about $124 billion in assets under management, is, “subscale at a time when larger competitors are squeezing midsize active managers and performance and cost efficiencies are key determinants of future success.”
The F&C Asset Management business also didn’t do much to contribute to the bank’s overall earnings, the rating agency noted.
This latest deal follows the sale of BMO’s Asian private banking business earlier this year and its announcement at the end of last year that its investment dealer subsidiary would exit the non-Canadian energy sector.
“BMO recently has been engaged in a series of divestitures aimed at increasing operating efficiencies and returns on equity,” said Moody’s. “BMO’s strategy is to concentrate on business lines that have better prospects of earning a strong return, including its Canadian asset management business and private wealth management businesses in Canada and the U.S.”