(Adds comment from BMO Capital Markets executive, details)
By Lynne Olver
TORONTO, April 21 (Reuters) - Bank of Montreal (BMO.TO) said on Monday that its investment and corporate banking unit will buy Chicago-based bond dealer Griffin, Kubik, Stephens & Thompson Inc for an undisclosed amount.
GKST employs about 100 people in sales, trading, research, public finance and underwriting, and specializes in municipal bonds, U.S. Treasury and agency debt, and mortgage-backed securities, said Bank of Montreal, which also owns Chicago-based Harris Bank.
The acquisition will more than double the size of BMO Capital Markets' municipal bond business, it said.
"We think collectively there are a lot of things coming together to make this an attractive market," Charlie Piermarini, BMO Capital Markets' head of debt products and securitization, said in an interview.
Those include an expected pickup in U.S. infrastructure financing requirements, an improved yield curve, spreads to Treasuries that are more favorable to municipal bonds, as well as illiquidity in the market for municipal auction rate securities.
"The auction rate securities situation, I think, is a favorable area for the muni world, those deals are going to have to be refinanced or restructured in some way," Piermarini said.
The municipal bond business generates steady revenues and is not capital intensive, he also said.
"We think particularly with the infrastructure side, the growth is going to continue."
The GKST acquisition is expected to close in June, subject to U.S. and Canadian regulatory approvals. It will make BMO the sixth-largest bank-qualified municipal bond dealer in the United States, and the second-largest in the Midwest.
There has already been "a fair amount of consolidation" among municipal bond firms, Piermarini said.
"I really don't see a huge wave of consolidations coming at us in this arena," he said.
In February, BMO Capital Markets hired five municipal bond sales and trading professionals from LaSalle Bank's LaSalle Financial Services Inc.
($1=$1.01 Canadian) (Reporting by Lynne Olver)