SHOWDOWN IN ‘CHICAGOLAND’
BMO, CIBC and sea of nearly 200 other lenders square off in one of fiercest markets in U.S.
TORONTO For a decade, Bank of Montreal executives eyed with envy Chicago’s bustling corner of West Washington Street and North Wacker Drive.
The location, across from the 1920s-era Civic Opera House, sees thousands of weekday commuters shuttling between rail stations by the Chicago River and offices in the Loop business district.
In other words, a perfect spot for a BMO Harris Bank branch, if it wasn’t for the McDonald’s restaurant on the corner.
So when the fast-food chain vacated in November, the bank converted the former burger joint into a 2,500-square-foot “smart branch” featuring ATMs that don’t require debit cards, laptop-touting employees, Wi-Fi, and an Amazon.com Inc. pickup locker named “Moon.”
The branch is part of the battle being waged by Bank of Montreal and its smaller rival, Canadian Imperial Bank of Commerce, as they compete against JP Morgan Chase & Co. and almost 200 other lenders in so-called “Chicagoland” — one of the toughest banking markets in the U.S.
“You have an oversupply of banks competing for a finite business,” Christopher McGratty, a Keefe Bruyette & Woods analyst, said in an interview.
The two Canadian rivals literally face each other in Chicago, with their main offices on opposite sides of South LaSalle Street in the financial district.
CIBC took over PrivateBank’s 90-year-old building after last year’s US$5-billion purchase of the commercial lender.
Bank of Montreal is in the Harris Bank Complex, its blue and red logo above the street-level frontage of the glass-and-steel west tower.
Bank of Montreal gained a Midwest foothold with the purchase of Harris Bank in 1984. It then spent years snapping up small lenders until landing its US$4.3-billion takeover of Milwaukee-based Marshall & Ilsley Corp. in 2011. That deal doubled its U.S. deposits and branches.
“In Chicago specifically BMO is fairly well regarded,” Nathan Race, a Chicago-based bank analyst with Piper Jaffray & Co., said. “They have a nice retail franchise, a good private banking model and a good wealth management unit.”
While BMO Harris is holding its own for market share, U.S. rivals are expanding in America’s thirdlargest city, heightening the competition.
The latest move was by Fifth Third Bancorp, which agreed in May to buy Chicago-based MB Financial Inc. for US$4.7 billion.
“We will have a good size advantage,” Fifth Third CEO Greg Carmichael said in an email. He said the merger will elevate Fifth Third to the No. 2 player in retail deposits, while adding to its commercial lending business.
Bank of Montreal also bid on MB Financial with a higher offer than Fifth Third’s, Crain’s Chicago Business reported.
Bank of Montreal spokesman Paul Gammal declined to comment Thursday on the report.
JPMorgan has the most overall deposits in Chicagoland, with 22-per-cent market share, while BMO Harris Bank ranks second with 11.5 per cent, according to Federal Deposit Insurance Corp. data to June 2017. Bank of America Corp. is third, at 11 per cent, followed by Northern Trust Co. with 6.4 per cent and CIBC’s PrivateBank, with 4.4 per cent. Fifth Third’s takeover could leapfrog the Cincinnatibased lender into a Top 5 spot.
PrivateBank caught the eye of CIBC CEO Victor Dodig, who began talking to Richman almost four years ago. CIBC bought PrivateBank in 2017, the largest acquisition in its 151-year history.
The PrivateBank takeover and Fifth Third’s purchase of MB Financial could create “significant market dislocation,” and spark more deals, McGratty said in a June 5 note.
“Chicago still has far more banks and market share remains more fragmented than is found in most of the largest cities in the U.S.,” Fifth Third’s Carmichael said.
“It’s reasonable to assume that some of the banks there might seek to partner with others.”
The Canadian banks in Chicago seem cool to acquisitions, instead favouring internal expansion by grabbing more deposits and clients.
“The short-to-medium term is an organic strategy,” Dodig said of the potential for more U.S. bank deals. Any “tuck-in acquisitions” will likely focus on wealth management, he said in a June 12 interview.
CIBC’s U.S. strategy targets mostly mid-sized commercial clients. Richman, head of the U.S. region, is working to offer more services and attract bigger clients. He’s also looking to bolster retail deposits with a new online highinterest savings account.
“Given who we are and our focus and our market, driving increased deposits and deposit share is really important, but we’re not going to be in the retail banking business per se,” Richman said.
CIBC earned US$204 million from U.S. commercial banking and wealth management in the first half of this fiscal year, or 10 per cent of overall profit at Canada’s fifthlargest lender. The bank aims to get 17 per cent of its earnings from the U.S., including capital markets, by 2020.
At BMO Harris Bank’s headquarters, CEO David Casper also prefers building over buying, though the bank would be open to more acquisitions.
“There’s certainly many out there and we look at everything,” Casper said. “Organic growth is our focus today when we think about what we’re doing.”
BMO Harris Bank aims to push for more commercial loan growth, take advantage of cross-border business opportunities, expand its national businesses including equipment financing, and add deposits.
The lender also seeks more growth in personal banking and small business lending. That includes winning customers through a revamped digital banking platform and converting more locations to “smart branch” outlets such as the one on Wacker Drive. Eight of about 200 BMO Harris Bank locations around Chicago are these smaller format branches, with more to come.
Bank of Montreal earned $658 million in the fiscal first half from U.S. banking, 30 per cent of overall profit at Canada’s fourth-largest lender. The firm is banking on the U.S. for even greater contributions to its bottom line.
“We love the market, we love our current capabilities and we think we’re well positioned against anybody,” Bank of Montreal vice chairman Frank Techar said.
“The U.S. is centre ice for us at this point.”