Bank of Montreal

The stable outlook reflects our expectation that BMO's RAC ratio will likely decrease following the acquisition and then rebuild to 7%-10% over the next 24 months. In addition, we believe the bank will continue to mitigate any additional integration risks associated with the transaction. The outlook also reflects our assessment of a moderately high likelihood of extraordinary government support, which is unlikely to change. We could lower the rating if BMO's SACP falls by more than one notch over the next 24 months, possibly because of a confluence of negative factors, which we don't expect. This might include outsize credit or integration issues, and a much more aggressive capital policy. For example, we could lower the ratings if a combination

...The acquisition of BOTW will significantly expand Bank of Montreal's (BMO) U.S. franchise but there are some risks. Post-acquisition, BMO will have an expansive footprint across 32 U.S. states. In addition, the transaction provides entry to the California market, diversifying BMO's geographic base beyond the Midwest. The acquisition will add meaningful scale by increasing BMO's total assets by 12%. The bank's revenue contribution from its U.S. businesses will also increase to about 45% and 28% of the U.S. segment revenue will come from BOTW. The acquisition should increase BMO's loans by 15%. Nevertheless, we believe the acquisition poses some risks as the transaction will increase the bank's loan concentration in the U.S. to about 42% and there are some execution risks considering its size and cross-border nature (the largest acquisition of a U.S.-domiciled bank by a Canadian institution). Also, the bank will be entering less-familiar business lines, such as recreational vehicles and marine,...

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