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Expanding Our U.S. Wealth Management Franchise Bank of Montreal November 28, 2001.

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Presentation on theme: "Expanding Our U.S. Wealth Management Franchise Bank of Montreal November 28, 2001."— Presentation transcript:

1 Expanding Our U.S. Wealth Management Franchise Bank of Montreal November 28, 2001

2 1 The Transaction Transaction Terms Strategic Rationale - Expanding Our U.S. Wealth Management Franchise Combined CSFBdirect and InvestorLine Financial Impact Comparable Transactions Conclusion I NDEX

3 2 Acquiring CSFBdirect’s direct investing business for US$520 million Aligned with bank’s strategy to grow selectively and substantially in the U.S. Cash earnings per share neutral in Year 1, excluding one-time costs, and accretive thereafter Establishing a national platform to accelerate the expansion of The Harris  wealth management franchise in the U.S. Increasing our U.S. client base T HE T RANSACTION

4 3 T RANSACTION T ERMS Purchase PriceUS$520MM Consideration100% cash Allocation of Purchase Price Net book value Goodwill and identifiable intangibles US$54MM US$466MM Tax Benefit (PV)US$85MM ConditionsRegulatory approvals FinancingNon-common tier 1 capital of approximately US$500 million Anticipated ClosingFebruary 2002

5 4 Establishes a national U.S. wealth management business (Private Client Group “PCG”) based around The Harris  brand Harris has been in the wealth management business since 1892 Builds upon the North American wealth management platform As at October 31, 2001, our wealth management business consists of: S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE U.S. PCGTotal PCG Revenue (US$MM) AUA/AUM (US$B) Revenue (C$MM) AUA/AUM (C$B) Direct investing Full service investingna Retail investment products Private banking Investment management Total239731, * Includes Harris AdvantEdge ** Includes $9B of Harris Insight Funds ** **

6 5 Recent Growth Initiatives and Performance Direct investing  acquisition of BCL for US$45MM (1999)  formation of Harris InvestorLine  acquisition of Freeman Welwood for US$93MM (2000)  expanded to 116,000 active accounts from less than 5,000 in 1999 Full service investing  launched Harris AdvantEdge (2001) Mutual funds  21 funds of which 8 received 4-star Morningstar ratings (Sept 2001) Private banking  acquisition of Village Banc of Naples for US$13MM (2000)  acquisition of Century Bank in Phoenix for US$16MM (2000)  de novo openings in Phoenix, Minneapolis, Seattle S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE

7 6 Acquisition of CSFBdirect provides: 1.Attractive business with stand-alone economics 467,000 active accounts 1,000,000 total accounts US$16.3 billion in AUA 450 employees Strong client demographics:  Over 85% of clients are college educated  Over 40% of clients have incomes greater than US$75,000 Significant revenue base: S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE US$MM (YTD annualized) 180

8 7 Acquisition of CSFBdirect provides: 2. Addition of Key Markets S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE

9 8 Acquisition of CSFBdirect provides: 3. National Foot Print – Pre CSFBdirect and de novo openings S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE WASHINGTON - Seattle - Bellevue - Tacoma - Spokane OREGON - Portland CALIFORNIA - San Francisco COLORADO - Denver UTAH - Salt Lake City ARIZONA - Phoenix HAWAII - Honolulu ILLINOIS - Chicago- Hinsdale - Barrington- Lake Forest - Naperville- St. Charles - Palatine- Woodstock - Winnetka - Community Banks ARIZONA - Phoenix- Scottsdale - Tucson- Sun City - Carefree- Pinnacle Peak - Biltmore FLORIDA - Ft. Meyers- Sarasota - Vero Beach- Naples - West Palm Beach ILLINOIS OHIO -Chicago -Cleveland WISCONSIN -Milwaukee MICHIGAN -Detroit Harris Private Bank Burke, Christensen & Lewis Freeman Welwood Future Targets 1999 Presence Acquisitions since 1999

10 9 ILLINOIS - Chicago- Hinsdale - Barrington- Lake Forest - Naperville- St. Charles - Palatine- Woodstock - Winnetka - Community Banks ARIZONA - Phoenix- Scottsdale - Tucson- Sun City - Carefree- Pinnacle Peak - Biltmore FLORIDA - Ft. Meyers- Sarasota - Vero Beach- Naples - West Palm Beach Harris Private Bank Burke, Christensen & Lewis Freeman Welwood CSFBdirect physical locations - San Francisco- Boca Raton- New York City - Sandy City- Atlanta- Jersey City - Dallas- Chicago- Philadelphia - Charlotte Acquisition of CSFBdirect provides: 3. National Foot Print – Post CSFBdirect and de novo openings S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE WASHINGTON - Seattle - Bellevue - Tacoma - Spokane OREGON - Portland CALIFORNIA - San Francisco COLORADO - Denver UTAH - Salt Lake City ARIZONA - Phoenix HAWAII - Honolulu ILLINOIS OHIO -Chicago -Cleveland WISCONSIN -Milwaukee MICHIGAN -Detroit Future Targets 1999 Presence Acquisitions since 1999 De novo openings - Phoenix -- Minneapolis -- Seattle

11 10 Acquisition of CSFBdirect provides: 4. Recognized technology leadership “Best Online Brokerage Service” – March 2001 “Best of the Web” – March 2001 Number one “4-Stars” rating – March 2001 “Top Online Broker” – 2000 Worth Magazine Readers’ Choice Awards S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE

12 11 Acquisition of CSFBdirect provides: 5. Rapid integration with low risk CSFBdirect clients experience seamless transition Successfully integrated operations and converted brands of BCL and Freeman Welwood Minimal client attrition in previous acquisitions Depth of experience in direct investing S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE

13 12 Acquisition of CSFBdirect provides: 6. Overall enhanced wealth management franchise Opportunity to cross-sell full range of wealth management products to CSFBdirect clients Enriches our research, product offering, online services and tools for existing Harris InvestorLine clients Expands physical footprint for all wealth management businesses Import superior technology to Canadian client base S TRATEGIC R ATIONALE - E XPANDING O UR U.S. W EALTH M ANAGEMENT F RANCHISE

14 13 C OMBINED CSFBdirect A ND I NVESTOR L INE Combined new entity to be named Harris Direct Investing Led by Bruce Schwenger, Head of Global Direct Investing Moves us to 7 th largest North American direct investing firm in AUA and 7 th in active accounts ( up from 11 th ) Continuity of CSFBdirect senior executives – 4 of 6 remain Headquartered in New Jersey 23 combined retail locations in 15 states Recognized leading technology platform Combined North American active accounts of 852,000

15 14 CSFBdirect Financial Summary Selected Information for CSFBdirect (US$MM) E*Year 1** Forecast Total Revenue Total Expenses Pre-tax Earnings103(74)43 F INANCIAL I MPACT * YTD Q3 annualized ** Excluding one-time costs

16 15 BMO Financial Impact Cash earnings per share neutral in Year 1, excluding one-time costs, and accretive thereafter Purchase price implies a multiple of 18.8 times Year 1 cash net income IRR of approximately 18% BMO (C$MM) Year 1 Forecast Cash Net Income*62 Cash EPS**neutral F INANCIAL I MPACT * Excluding one-time costs and financing ** Excluding one-time costs

17 16 Sources of Projected Earnings Turnaround in Year 1 Operating cost improvements included in year 1 total $100MM: StaffingUS$26MM AdvertisingUS$18MM TechnologyUS$41MM Professional FeesUS$12MM Other US$3MM Most of the cost improvements have already been achieved or initiated Assumes current market activity levels Prudent financial projections – exclude benefit of cross-selling F INANCIAL I MPACT

18 17 Non-common, tier 1 capital will be raised Tier 1 ratio improves through 2002 as a result of:  earnings retention  managed reduction in risk-weighted assets One-time pre-tax charge of US$50-55MM plus up to US$10MM of transaction costs which increases goodwill F INANCIAL I MPACT BMO Capital Ratios Year-end 2001 Pro Forma Transaction Year-end 2002E Tier 1 Ratio8.15%8.13%8.5%

19 18 C OMPARABLE T RANSACTIONS The purchase price multiples are within the bounds of comparable transactions and well below averages of a year ago Announcement Date AcquirerTarget Price/Active Account Price/ Revenue 10 Oct 2001TD BankTD Waterhouse1,1042.9x 21 May 2001E-TradeWeb Street1,3241.8x 26 Mar 2001Credit Suisse GroupCSFB Direct (18%)1,1682.2x 15 Jun 2000Bank of MontrealFreeman Welwood1,6023.3x 01 Dec 1999Bank of MontrealBCL1,5523.5x Mean1,3502.8x Median1,3242.9x Bank of MontrealCSFBdirect *1,1142.4x *The price/active account for this transaction is $931 when the $85MM present value of the tax benefit is deducted from the $520MM purchase price

20 19 C ONCLUSION Establishing a national platform to accelerate the expansion of The Harris  wealth management franchise in the U.S. Acquisition of a quality business at an attractive price Acquisition neutral to cash earnings per share in Year 1, excluding one-time costs, and accretive thereafter Consistent with North American wealth management strategy to expand distribution network and U.S. presence

21 20 W EALTH M ANAGEMENT F RANCHISE

22 21 F ORWARD L OOKING S TATEMENTS CAUTION REGARDING FORWARD-LOOKING STATEMENTS This financial presentation includes forward-looking statements, which are made pursuant to the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of These forward-looking statements include, but are not limited to, comments with respect to our objectives, targets, strategies, financial condition, the results of our operations and our businesses, our outlook for our businesses and for the Canadian and U.S. economies, and risk management. By their very nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this report not to place undue reliance on these forward-looking statements as a number of important factors could cause actual future results to differ materially from the plans, objectives, targets, expectations, estimates and intentions expressed in such forward-looking statements. The future outcomes that relate to forward-looking statements may be influenced by the following factors: fluctuations in interest rates and currency values; regulatory developments; statutory changes; the effects of competition in the geographic and business areas in which we operate, including continued pricing pressure on loan and deposit products; and changes in political and economic conditions including, among other things, inflation and technological changes. We caution that the foregoing list of important factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider the foregoing factors as well as other uncertainties and potential events. The Bank does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Bank.


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