Moody's May Downgrade Bank of Montreal on Takeover of M&I Bank in the U.S

Bank of Montreal’s credit rating may be downgraded by Moody’s Investors Service because of “integration challenges” from a $4.1 billion takeover of Milwaukee-based Marshall & Ilsley Corp.

Moody’s placed the long-term Aa2 rating of Canada’s fourth- biggest bank and ratings for its subsidiaries on review for downgrade, the rating company said today in a statement. Bank of Montreal’s short-term Prime-1 ratings were affirmed.

“The transaction is transformative for BMO’s U.S. operations, and will present the firm with integration challenges,” Moody’s said in the statement.

Bank of Montreal agreed to pay 0.1257 of its own share for each share of Marshall & Ilsley to expand its Chicago-based Harris Bank, the Toronto-based lender said today. The deal will double Bank of Montreal’s U.S. deposits and branches as it expands in the Midwest.

“These merger execution challenges are compounded by the fact that M&I has significant asset quality issues, and BMO’s existing U.S. operations have underperformed and have not been consistently profitable in recent years,” Moody’s said.

DBRS Ltd., the Toronto-based rating company, today confirmed the bank’s AA rating, and said all trends are stable.

“The confirmation of BMO’s ratings and trends reflects DBRS’s belief that the acquisition is a good strategic and geographic fit for Harris Bankcorp Inc. and BMO’s sizable domestic franchise,” the company said in a statement.