Bank of Montreal - Merger Plan
January 23 1998 - 11:14AM
UK Regulatory
RNS No 0901v
BANK OF MONTREAL
23rd January 1998
BANK OF MONTREAL AND ROYAL BANK OF CANADA ANNOUNCE PLANS FOR MERGER
Toronto, January 23 - The Board of Directors of Bank of Montreal and Royal
Bank of Canada today announced a definitive agreement, subject to regulatory
and shareholder approval, to merge both banking groups into a new bank as
equal partners.
"This merger will create a Canadian-based, internationally competitive bank
with a strong North American platform which allows us to cost-effectively
deliver quality products and services to Canadians, and retain high-quality
financial service jobs in Canada," said John E. Cleghorn, Chairman and Chief
Executive Officer, Royal Bank of Canada. "Together, we will have the financial
resources, technology and skills to help Canada remain a global leader in
financial services, just as other Canadian-based companies like Nortel, Alcan
and Bombardier are leaders in their respective fields."
"With the support of our customers and staff, we have grown into strong and
prosperous businesses which have been a symbol of Canadian stability and
trustworthiness for well over a century," said Matthew W. Barrett, Chairman
and Chief Executive Officer, Bank of Montreal. "We cannot be complacent. Past
and present successes are no guarantee of leadership in the future. We owe our
Canadian customers and employees, who have given us a strong franchise, our
very best efforts to keep it vibrant for the future. Together, we can progress
from strong Canadian players today to a recognized participant in the
increasingly global financial services industry. We can offer our customers a
truly competitive home-based option and our employees rewarding jobs."
Together, the new bank will:
:: for customers, continue to provide face-to-face service in communities
where the banks currently do so, while investing more than $7 billion over the
next five years in developing state-of-the-art technology for the future. With
a larger customer base and greater technological scale, the new bank will be
able to offer personal and business customers better advice, choices, and
service at lower costs;
:: for employees, provide more rewarding jobs and personal development with a
commitment to invest more than $750 million in training over the next five
years. The new bank does not anticipate any significant job displacement as a
result of this merger. Ongoing turnover at both banks, with retirements and
voluntary departures, together with our leading people management programs
will give us the flexibility we need to grow business and create new jobs in
the future;
:: for shareholders, the vast majority of whom are ordinary Canadians whose
retirement lifestyle is tied to the success of both banks through their stock
holdings, provide continued strong returns;
:: for communities, provide continued strong philanthropic support in the
order of $250 million over the next five years, and a commitment to increase
our total donations as the company's income grows.
The merger is a Canadian response to the sharply rising level of global
competition in the financial services market, which is evolving at a rapid
pace. Canada's recent successes in improving its fiscal situation, trade
performance and economic fundamentals, together with its strong economic
growth and human capital have made it a much more attractive market. New
international competitors have been and continue to enter the Canadian
marketplace, joining global giants like Hongkong Bank and Citibank who have
already carved out a significant presence in Canada. For example, U.S. and
overseas competitors such as Wells Fargo & Co., MBNA Corp., Capital One
Financial Corp., Fidelity, ING, GE Capital Corp. and others have made entries
into the domestic market recently.
"These international financial services giants threaten to marginalize much
smaller Canadian banks in the international market, and gain a competitive
advantage in Canada by applying their greater scale and investments in
technology," said Mr. Cleghorn.
Over the last three years in the U.S., more than $1 trillion, or one-fifth, of
banking and thrift assets have been consolidated, creating much stronger and
more cost effective North American competitors. Similar consolidation has and
is continuing to take place on a global basis in countries such as
Switzerland, the Netherlands, Germany, and Japan.
The Canadian government for its part has recognized and encouraged the move to
a single global banking market by repeatedly liberalising entry requirements
for foreign firms, and by signing the recent WTO agreement on financial
services.
"As new and increasingly larger foreign financial institutions bring the
benefits of their size and technology to the North American marketplace, we
want to ensure that Canadians retain a home-grown choice that can compete with
the best in the world on price, service and innovation," said Mr. Barrett. "By
having the headquarters of a worldscale corporation in Canada, we can also
create more opportunities for our employees in high-quality jobs, and more
opportunities for employment in the thousands of small and medium-sized
businesses that supply us with goods and services."
The merger will help Canada retain a healthy, globally competitive financial
services industry worthy of a leading economic nation. Personal customers of
the new bank will be able to choose from a broader array of financial products
through a variety of distribution channels including one of the largest
branch, ABM and direct banking networks in North America at some of the lowest
transaction costs in the world. Together, the new bank will also have the
resources to act as a lead bank for any corporation, and will be able to help
Canadian companies increase their exports in more markets worldwide. Canadians
will be able to count on a strong financial partner in Canada and around the
globe.
Mr. Cleghorn said, "The new bank brings together proud traditions of community
banking, financial strength, and a remarkable depth of talent across many
lines of business. We are creating a new North American bank with tremendous
strengths in consumer banking, small business lending, venture capital, wealth
management, corporate and investment banking and electronic commerce. Our
customers will enjoy an unsurpassed standard of convenience, quality of
service and value."
The new bank will also help ensure that Canadians continue to share in the
economic benefits that come from having a major international financial
centre, with head office, research and development, and support jobs based in
Canada. The Swiss and Dutch, well aware of these benefits, have moved
aggressively to ensure that their banking industries remain strategic assets
in their respective countries.
"In virtually every major developed country, governments are encouraging their
banks through public policy to consolidate and become more competitive
internationally in their country's own national interest," said Mr. Barrett.
"In the U.S. this has resulted in an amazing level of consolidation and the
creation of more globally competitive financial institutions right on our
border and with designs on expanding their business in Canada."
Under the terms of the agreement, shareholders of Royal Bank of Canada will
receive one common share of the new bank for each common share held. Bank of
Montreal shareholders will receive 0.97 of a common share of the merged entity
for each common share held. This would result in Bank of Montreal shareholders
owning 45.1 per cent of the outstanding common shares at the time of closure,
and Royal Bank of Canada shareholders owning 54.9 per cent.
The combined market capitalization of the new bank would be $38 billion. The
investment advisors are Nesbitt Burns and Goldman Sachs for Bank of Montreal
and RBC Dominion Securities and Credit Suisse First Boston for Royal Bank of
Canada. This transaction, which is a merger of equals, will be accounted for
as a pooling of interests.
A new board of directors will be created with equal representation from the
two founding boards. Mr. Cleghorn will serve as Co-Chairman of the new bank's
Board of Directors and Chief Executive Officer of the new bank. Mr. Barrett
will serve as Co-Chairman of the new bank's Board of Directors, Chairman of
the Board's Executive Committee, and will have special responsibility for
activities relating to integration and strategic planning. The Senior
Management Committee of the new bank will have 18 members, including Messrs.
Cleghorn and Barrett, drawn equally from the two banks.
The merger requires approval under the Bank Act and the Competition Act in
Canada, as well as various other Canadian, US and international approvals.
The new bank would rank in the top 10 in North America and the top 25 in the
world for market capitalization, and based on fiscal 1997 year-end would have
generated 41 per cent of its total income from outside Canada from more than
300 branches and offices in more than 35 countries.
Bank of Montreal is a highly diversified financial services organisation that
includes Nesbitt Burns and Chicago-based Harris Bank. Bank of Montreal has an
equity position in and an alliance with Grupo Financiero Bancomer, the leading
Mexican financial institution. The bank and its 34,000 employees serve seven
million customers, through 1,250 locations.
Royal Bank of Canada is the country's largest provider of personal and
business banking, corporate and investment banking and wealth management. The
Royal Bank Financial Group includes Royal Trust, RBC Dominion Securities, RBC
Insurance and Royal Bank Action Direct. The bank has 58,000 employees who
serve 10 million customers through 1,600 branches and offices in 35 countries.
FACT SHEET
Transaction Summary
BMO RY
No. common shares outstanding
(in thousands) 261,606 308,608
---------------------------------------------------------
Exchange ratio 0.97 1.00
---------------------------------------------------------
No. of new bank common shares
(in thousands) 253,758 308,608
---------------------------------------------------------
Share price (30-day average)(x) $62.27 $76.27
---------------------------------------------------------
(x)period ending Jan. 22/98
I. The exchange ratio is fixed (i.e. will not be adjusted for future
share price movements) and will be applied to the number of common
shares outstanding at closing. Based on current shares outstanding,
it would result in Bank of Montreal shareholders owning 45.1 per cent
of the outstanding common shares of the new bank and Royal Bank
shareholders owning 54.9 per cent.
Other Key Terms
I. The new bank intends to adopt a dividend policy that won't result in
diminution to either bank's shareholders.
Key Financial Data
For the year ended Oct. 31, 1997
----------------------------------------------------------------------
BMO RY
----------------------------------------------------------------------
Total assets (as at Oct. 31) $208 billion $245 billion
----------------------------------------------------------------------
Total revenue $7.2 billion $9.3 billion
----------------------------------------------------------------------
Net income $1.31 billion $1.68 billion
----------------------------------------------------------------------
Market capitalization $15.9 billion $23.2 billion
----------------------------------------------------------------------
Net income from outside Canada 58% 28%
----------------------------------------------------------------------
Earnings per share (basic) $4.69 $5.01
----------------------------------------------------------------------
Return on equity 17.1% 19.3%
----------------------------------------------------------------------
Return on investment 55% 74%
----------------------------------------------------------------------
Productivity 64.4% 65%
----------------------------------------------------------------------
Assets under administration $299.1 billion $782.3 billion
----------------------------------------------------------------------
Assets under management $52.9 billion $66.1 billion
----------------------------------------------------------------------
Provision for credit
losses/Average loans .23% .25%
----------------------------------------------------------------------
Net impaired loans ($358 million) $103 million
----------------------------------------------------------------------
Other Facts and Figures for 1997
----------------------------------------------------------------------
BMO RY
----------------------------------------------------------------------
Salaries and benefits $2.5 billion $3.4 billion
----------------------------------------------------------------------
Goods and services purchased $1.7 billion $1.8 billion
----------------------------------------------------------------------
Taxes and gov't levies paid $1.2 billion $1.5 billion
----------------------------------------------------------------------
Investment in technology $674 million $750 million
----------------------------------------------------------------------
Dividends paid out (common) $427 million $600 million
----------------------------------------------------------------------
Employees (FTE) 34,286 50,719
----------------------------------------------------------------------
Branches in Canada 1,099 1,453
----------------------------------------------------------------------
Branches outside Canada 147 105
----------------------------------------------------------------------
Automated bank machines 2,035 4,248
----------------------------------------------------------------------
Customers 7 million 10 million
----------------------------------------------------------------------
World's largest banks ranked by market Capitalization
(as of Jan. 16, 1998)
----------------------------------------------------------------------
Market Capitalization (US$)
----------------------------------------------------------------------
1. Lloyds TSB Group $70.3 billion
----------------------------------------------------------------------
2. Bank of Tokyo-Mitsubishi $67.3 billion
----------------------------------------------------------------------
3. HSBC Holdings $60.8 billion
----------------------------------------------------------------------
4. NationsBank $57.7 billion
----------------------------------------------------------------------
5. United Bank of Switzerland(x) $56.6 billion
----------------------------------------------------------------------
6. Citicorp $54.8 billion
----------------------------------------------------------------------
7. BankAmerica Corp. $47.3 billion
----------------------------------------------------------------------
8. Chase Manhattan Corp. $44.5 billion
----------------------------------------------------------------------
9. First Union(x) $43.7 billion
----------------------------------------------------------------------
10. Barclays $43.5 billion
----------------------------------------------------------------------
11. Sumitomo Bank $41.3 billion
----------------------------------------------------------------------
12. ING $37.9 billion
----------------------------------------------------------------------
13. Sanwa Bank $34.3 billion
----------------------------------------------------------------------
14. Deutsche Bank $32.8 billion
----------------------------------------------------------------------
15. Banc One Corp. $31.6 billion
----------------------------------------------------------------------
16. NatWest $29.8 billion
----------------------------------------------------------------------
17. Credit Suisse Group $29.0 billion
----------------------------------------------------------------------
18. ABN Amro Holdings $28.5 billion
----------------------------------------------------------------------
19. Norwest Corp. $28.0 billion
----------------------------------------------------------------------
20. Wells Fargo & Co. $27.9 billion
----------------------------------------------------------------------
21. U.S. Bancorp $27.0 billion
----------------------------------------------------------------------
22. New bank $26.6 billion
----------------------------------------------------------------------
(x) pro forma to include recently-announced merger plans
Top 10 North American banks ranked by market Capitalization
(as of Jan. 16, 1998)
----------------------------------------------------------------------
Market Capitalization (US$)
----------------------------------------------------------------------
1. NationsBank $57.7 billion
----------------------------------------------------------------------
2. Citicorp $54.8 billion
----------------------------------------------------------------------
3. BankAmerica Corp. $47.3 billion
----------------------------------------------------------------------
4. Chase Manhattan Corp. $44.5 billion
----------------------------------------------------------------------
5. First Union(x) $43.7 billion
----------------------------------------------------------------------
6. Banc One Corp. $31.6 billion
----------------------------------------------------------------------
7. Norwest Corp. $28.0 billion
----------------------------------------------------------------------
8. Wells Fargo & Co. $27.9 billion
----------------------------------------------------------------------
9. U.S. Bancorp $27.0 billion
----------------------------------------------------------------------
10. New bank $26.6 billion
----------------------------------------------------------------------
(x) pro forma to include recently-announced merger plans
Editors / Assignment Desk: There will be a news conference with Mr. Cleghorn
and Mr. Barrett at 10 AM, Royal York Hotel, The Upper Canada Room, 18th Floor
Contact: Media Relations - Bank of Montreal, Joe Barbera, tel
001-416-927-2740; Lynne Kilpatrick, tel 001-416-927-2740; Ronald Monet, tel
001-514-877-1101; Investor Relations - Cathy Cranston, tel 001-416-867-6656;
Royal Bank of Canada - Dan Maceluch, tel 001-416-974-5506; Nabanita Merchant,
tel 001-416-955-7803; Editors / Assignment Desk: There will be a news
conference with Mr. Cleghorn and Mr. Barrett at 10 AM, Royal York Hotel, The
Upper Canada Room, 18th Floor
END
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