NEW YORK - Marshall Ilsey, the recently acquired Wisconsin area based bank by Canadian Bank of Montreal on December 17 has seen its shares rise nearly 20%. It is undecided if BMO (pronounced BeeMO) will be renaming the bank with its iconic Canadian name, keeping the historic MI name or using its Harris Bank name. BMO has owned Harris Bank since 1984 which is the third largest bank in Chicago. Canadian Banks often go through great lengths to hide the fact that their bank is Canadian in the U.S. For instance most Americans are likely unaware that the TD in TD Bank stands for Toronto Dominion which of course is the location of Canada's capital city.
MI currently trades at $6.95 while BMO trades at $57.76. Given the conversion rate that will take place if the merger goes through then each MI share has an actual value of $7.26 meaning it trades at 4.4% below its conversion value. The discount often goes down as the merger date grows closer. For instance when the merger deal was announced and the day after the discount was 6% which is higher than today's price.
The Wells Fargo and Wachovia deal can be seen as a comparable to this current deal. Wells Fargo acquired Wachovia in 2008 with stock and similar to the Wachovia/Wells Fargo deal, MI shareholders will need to approve the deal with a vote.
To see the full BMO/MI report click here.
Showing posts with label MI. Show all posts
Showing posts with label MI. Show all posts
Friday, December 31, 2010
Monday, December 20, 2010
Buy BMO (NYSE: BMO)
NEW YORK - Marshall & Ilsley corporation has announced that it will be bought out by Bank of Montreal. BMO will increase its assets size in the U.S. to $150 billion which would make it essentially the 11th largest bank in the U.S.
The transaction can allow people to play arbitrage with the two companies stocks. MI which is a very weak company trades at $6.62 and it will be converted into 0.1257 shares of BMO. In essence each MI share should trade at $7.02 which is a 6% discount to the current price. BMO has lost nearly 9% of its value on a merger we deem to be very positive. And if one buys MI they can get it at a 15% discount since the merger was talked about and when the merger is completed they will receive their BMO shares. Of course there is risk that the merger will fall through. However, it is unlikely given the weakness of MI. The regulators will want this deal to close.
We also believe BMO was already the most undervalued Canadian Bank.
The transaction can allow people to play arbitrage with the two companies stocks. MI which is a very weak company trades at $6.62 and it will be converted into 0.1257 shares of BMO. In essence each MI share should trade at $7.02 which is a 6% discount to the current price. BMO has lost nearly 9% of its value on a merger we deem to be very positive. And if one buys MI they can get it at a 15% discount since the merger was talked about and when the merger is completed they will receive their BMO shares. Of course there is risk that the merger will fall through. However, it is unlikely given the weakness of MI. The regulators will want this deal to close.
We also believe BMO was already the most undervalued Canadian Bank.
Friday, December 17, 2010
BMO Buys 19th Largest Bank (NYSE:BMO) (NYSE: MI)
NEW YORK - Bank of Montreal did a little Christmas Shopping today as it picked up Marshall & Ilsley Corporation (MI) the 19th largest bank in the U.S. by assets. The company will issue approximately 67 million shares in the transaction valuing the company at $4.1 billion, but due to the recent slide of the share price after the announcement it is now for $3.8 billion. MI is one of the many remaining ghost banks in the U.S. which still owe the government TARP money and are mired in losses. Shareholders of BMO quickly deserted the company's stock on the news as it dropped nearly 7%. On the other hand MI is up nearly 18% on the news.
BMO based on its asset size would be the 12th largest bank in the U.S.
BMO based on its asset size would be the 12th largest bank in the U.S.
Wednesday, November 17, 2010
The Weak and the Meek Separate, PNC, BAC, RF, JPM, C
NEW YORK - Strong U.S. Financial are beginning to separate from the weaker financial institutions which have rallied with the stock market since it hit its lows in March 2009.
The strongest institutions, PNC Financial, U.S. Bancorp and Wells Fargo stocks continue to move higher as other banks decline. The banks which are severely weakening are Marshall & Ilsley and Regions Financial which are down nearly 30% in the last month. Investors have rapidly switched into the banks with the strongest amounts of capital such as U.S. Bancorp, PNC, BAC, JP Morgan & Chase and Wells Fargo and switched out of the more speculative names. Stocks such as Bank of America and Citigroup which are profitable and well capitalized have not seen as much of rise in their stock price due to extra bailout packages they took from the government which can limit their ability to increase their dividends.
Stocks such as PNC Financial which has the second highest tier 1 common ratio in the businesses only behind Comerica Bank and is eagerly awaiting to redistribute capital to its shareholders.
But there is more... The stocks of the companies which have to pay back TARP are caught in perpetual loop. As their share prices go down the potential for dilution to pay back tarp increases which intuitively would cause its share price to go down further. For instance RF owes the government $3.4 billion at $7 a share the stock would only be diluted by 25% to pay back $3.4 billion but at $5 a share it would be diluted by nearly 40%. If the stock drops to $1 it would be diluted by 75%. This may not prove to be a problem if the shares increase in the future and RF pays the government back with more expensive shares. However, the government may not be forgiving to the bank and may force them to raise the capital at a inopportune time. This is what makes the stock unattractive regardless of the underlying fundamentals which are not very good either.
We continue to recommend, PNC Financial to see the full report click here.
The strongest institutions, PNC Financial, U.S. Bancorp and Wells Fargo stocks continue to move higher as other banks decline. The banks which are severely weakening are Marshall & Ilsley and Regions Financial which are down nearly 30% in the last month. Investors have rapidly switched into the banks with the strongest amounts of capital such as U.S. Bancorp, PNC, BAC, JP Morgan & Chase and Wells Fargo and switched out of the more speculative names. Stocks such as Bank of America and Citigroup which are profitable and well capitalized have not seen as much of rise in their stock price due to extra bailout packages they took from the government which can limit their ability to increase their dividends.
Stocks such as PNC Financial which has the second highest tier 1 common ratio in the businesses only behind Comerica Bank and is eagerly awaiting to redistribute capital to its shareholders.
But there is more... The stocks of the companies which have to pay back TARP are caught in perpetual loop. As their share prices go down the potential for dilution to pay back tarp increases which intuitively would cause its share price to go down further. For instance RF owes the government $3.4 billion at $7 a share the stock would only be diluted by 25% to pay back $3.4 billion but at $5 a share it would be diluted by nearly 40%. If the stock drops to $1 it would be diluted by 75%. This may not prove to be a problem if the shares increase in the future and RF pays the government back with more expensive shares. However, the government may not be forgiving to the bank and may force them to raise the capital at a inopportune time. This is what makes the stock unattractive regardless of the underlying fundamentals which are not very good either.
We continue to recommend, PNC Financial to see the full report click here.
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