expanding our u.s. wealth management franchise bank of montreal november 28, 2001
TRANSCRIPT
Expanding Our U.S. Wealth Management Franchise
Bank of MontrealNovember 28, 2001
Expanding Our U.S. Wealth Management Franchise
Bank of MontrealNovember 28, 2001
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• The Transaction
• Transaction Terms
• Strategic Rationale - Expanding Our U.S. Wealth Management Franchise
• Combined CSFBdirect and InvestorLine
• Financial Impact
• Comparable Transactions
• Conclusion
INDEX
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• 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
THE TRANSACTION
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TRANSACTION TERMS
Purchase Price US$520MM
Consideration 100% cash
Allocation of Purchase Price
Net book value
Goodwill and identifiable intangibles
US$54MM
US$466MM
Tax Benefit (PV) US$85MM
Conditions Regulatory approvals
Financing Non-common tier 1 capital of approximately US$500 million
Anticipated Closing February 2002
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• Establishes a national U.S. wealth management business (Private Client Group “PCG”) based around The Harris brand
• Harris has been in the wealth management business since 1892
• Builds upon the North American wealth management platform
• As at October 31, 2001, our wealth management business consists of:
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
U.S. PCG Total PCG
Revenue (US$MM)
AUA/AUM (US$B)
Revenue (C$MM)
AUA/AUM (C$B)
Direct investing 30 7 143 18
Full service investing na na 687 58
Retail investment products 19 28 247 91
Private banking 162 32 334 56
Investment management 28 6 86 14
Total 239 73 1,497 237* Includes Harris AdvantEdge
** Includes $9B of Harris Insight Funds
**
**
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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
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
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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$75,000
• Significant revenue base:
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
US$MM
2000 291
2001 (YTD annualized) 180
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Acquisition of CSFBdirect provides:
2. Addition of Key Markets
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
Marketing Area Active AccountsNew York 86,251Los Angeles 28,657San Francisco-Oakland-San Jose 19,115Chicago 18,864Boston 16,546Philadelphia 16,264Washington, DC-Hagerstown 14,549Atlanta 9,004Seattle-Tacoma 8,611Dallas-Ft. Worth 8,449Houston 8,103
Marketing Area Active AccountsDetroit 7,967Miami-Ft. Lauderdale 7,454Hartford & New Haven 6,242Denver 6,187Tampa-St. Pete (Sarasota) 6,122San Diego 5,485Minneapolis-St. Paul 5,309Phoenix 5,089Cleveland 4,915All Other Markets 177,475Total 466,658
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Acquisition of CSFBdirect provides:
3. National Foot Print – Pre CSFBdirect and de novo openings
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
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 & LewisFreeman Welwood
Future Targets
1999 Presence
Acquisitions since 1999
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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 & LewisFreeman 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
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
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
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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
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
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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
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
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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
STRATEGIC RATIONALE - EXPANDING OUR U.S. WEALTH MANAGEMENT FRANCHISE
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COMBINED CSFBdirect AND INVESTORLINE
• Combined new entity to be named Harris Direct Investing
• Led by Bruce Schwenger, Head of Global Direct Investing
• Moves us to 7th largest North American direct investing firm in AUA and 7th in active accounts ( up from 11th )
• 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
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CSFBdirect Financial Summary
Selected Information for CSFBdirect (US$MM)
1999 2000 2001E* Year 1** Forecast
Total Revenue 208 291 180 197
Total Expenses 198 288 254 154
Pre-tax Earnings 10 3 (74) 43
FINANCIAL IMPACT
* YTD Q3 annualized
** Excluding one-time costs
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BMO Financial Impact
• Cash earnings per share neutral in Year 1, excluding one-time costs, and accretive thereafter
• Purchase price implies a multiple of 18.8 times Year 1 cash net income
• IRR of approximately 18%
BMO (C$MM)
Year 1 Forecast
Cash Net Income* 62
Cash EPS** neutral
FINANCIAL IMPACT
* Excluding one-time costs and financing
** Excluding one-time costs
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Sources of Projected Earnings Turnaround in Year 1
• Operating cost improvements included in year 1 total $100MM:Staffing US$26MMAdvertising US$18MMTechnology US$41MM Professional FeesUS$12MMOther 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
FINANCIAL IMPACT
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• 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
FINANCIAL IMPACT
BMO Capital Ratios
Year-end 2001
Pro Forma Transaction
Year-end 2002E
Tier 1 Ratio 8.15% 8.13% 8.5%
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COMPARABLE TRANSACTIONS
• The purchase price multiples are within the bounds of comparable transactions and well below averages of a year ago
Announcement
DateAcquirer Target
Price/Active Account
Price/ Revenue
10 Oct 2001 TD Bank TD Waterhouse 1,104 2.9x
21 May 2001 E-Trade Web Street 1,324 1.8x
26 Mar 2001 Credit Suisse Group CSFB Direct (18%)
1,168 2.2x
15 Jun 2000 Bank of Montreal Freeman Welwood 1,602 3.3x
01 Dec 1999 Bank of Montreal BCL 1,552 3.5x
Mean 1,350 2.8x
Median 1,324 2.9x
Bank of Montreal CSFBdirect * 1,114 2.4x
* 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
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CONCLUSION
• 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
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FORWARD LOOKING STATEMENTS
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 1995. 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.