Why BMO boss Darryl White is buying what the French are selling

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France’s biggest bank, BNP Paribas SA, is exiting the American market because it couldn’t make acceptable returns on Bank of the West, a 514-branch network it has been building for more than four decades.

Canada’s fourth-largest lender, Bank of Montreal , announced Monday it will buy that business, which spans the Western and Midwestern United States, in a $20.9-billion deal. This will be the largest acquisition ever staged by a domestic bank.

Under the circumstances, it’s logical to wonder: Why is BMO buying when the French are selling?

“That’s a good question,” BMO chief executive Darryl White said in an interview. Then he paused for a moment, but not because he didn’t have an answer. He had admitted, moments before, that he began working on this career-defining takeover almost as soon as he took the top job four years ago.

No, Mr. White paused because he needed to be diplomatic. One can’t say BNP Paribas is in retreat. The French are sensitive on the subject. BMO’s boss also needs to tread cautiously when discussing how U.S. and Canadian regulators will react to this deal.

So Mr. White, a CEO who typically answers questions with disarming directness, offered a nuanced response.

“I don’t want to put words in the mouths of my French colleagues, but there are fundamental differences between us, even though we are both foreign banks in the U.S. market,” Mr. White said. Then he recited a list of BMO’s strengths south of the border: its 150 years of experience in California, where Bank of the West has 70 per cent of its deposits; its track record of successfully integrating U.S. acquisitions; and its efficient “branch-light” approach to client service.

By “branch-light,” BMO means using digital platforms to deliver products to customers who currently have branch-based relationships. These days, that may sound like basic banking. But Mr. White said Bank of the West’s online wealth management platform is at a “nascent stage” compared to what BMO offers through its existing 524-branch Midwestern U.S. network.

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What Mr. White hinted at, but cannot say flat out, is that BMO is really good at U.S. commercial and retail banking. BNP Paribas, not so much.

BMO’s overall return on equity last year was 14 per cent, twice the profitability of the French bank. For BMO, bulking up in rapidly growing states such as California will turbocharge U.S. operations. The company expects its earnings per share to increase by 10 per cent, partly as a result of $860-million in cost-saving synergies, once it finishes integrating Bank of the West in 2024.

If this deal closes as scheduled late next year, BMO will become a top-10 player in cities such as Los Angeles, San Francisco and San Jose, Calif. “It takes decades to build these levels of market share,” Mr. White said.

BNP Paribas plans to use proceeds from the sale of its American business for bolt-on acquisitions in its home market, and a massive share buyback.

BMO, along with Canada’s other big banks, is currently sitting on record amounts of excess capital, in part because of regulatory restrictions imposed during the pandemic. Until Monday, there were widespread expectations these institutions would follow conservative game plans, much like BNP Paribas is doing.

“For a while now we have wondered whether Canadian banks might be better served using their historic excess capital levels more boldly, especially in the face of the rising fintech threat,” Scotiabank analyst Meny Grauman said in a report on Monday. “Well, there is no arguing that BMO is being bold choosing a U.S. acquisition over buybacks.”

Back in 1998, Royal Bank of Canada and BMO proposed a merger. John Cleghorn, then RBC’s chief executive, said the two banks had to join forces because BMO was “halfway across the lake” with its U.S. expansion strategy, and needed to bulk up to get to the other side.

The merger never happened – the Canadian government shut it down – but BMO and the rest of the Canadian banks built balance-sheet heft on their own. In bidding for Bank of the West, Mr. White has found an acquisition that gets BMO to the other side of that lake.

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