TORONTO The chief executive of Bank of Montreal (BMO.TO) says regulatory uncertainty will have lifted enough by the second half of 2010 for the bank to make acquisitions, and that waiting any longer would be a mistake.
BMO, North America's ninth-largest bank, with big operations across Canada and in the U.S. Midwest, has said it is keen to expand its U.S. operations and wealth management division as global rivals struggle to recover from the financial crisis.
Chief Executive Bill Downe said on Tuesday that while global banking regulations may still be under construction through 2010, the uncertainty about capital rules has dramatically eased from just six months ago and soon there will be enough clarity to allow healthy banks to make some acquisitions.
"I think in the latter half of this year, even if the new regulatory framework isn't in place, the relative impact of combining two banks and the expected capital regime will give us ... the confidence to look at transactions," Downe said in an interview with Reuters following BMO's annual meeting.
"I don't think you need to wait for the entire global framework to be inked. In fact, I think it would be a mistake to wait," he said, adding that not only will opportunities be gone but prices will go up if buyers hesitate.
"The best opportunities will have taken action. Good companies that would be good matches will move ahead, and over time I do think as uncertainty declines then prices will change."
BMO, which has operations in the United States through its Harris Bank unit, has said it would like to build up its presence in the U.S. Midwest while rivals are distracted or sidelined by the meltdown that hit U.S. banks.
Canadian banks have emerged relatively unscathed from the global financial crisis, avoiding government bailouts or bankruptcies and remaining mostly profitable.
While BMO has struggled with loan losses in its U.S. personal and commercial banking operations, its capital position is well above most global rivals, putting it in a strong position to make acquisitions or invest in growth without weakening its balance sheet.
Downe said he is confident BMO will remain one of the strongest global banks from a capital position, even after international banking regulators restructure minimum capital requirements and maximum leverage levels. More clarity about global rules is expected by the end of April.
"When we look at the potential factors that could adjust capital down under a new framework, we don't think we're going to be affected much by them," Downe said, noting the bank already has a high proportion of common equity included in its Tier 1 capital ratio, which stood at 12.5 percent at the end of the first quarter.
The new global rules are expected to increase minimum capital ratios and decrease maximum leverage levels held by banks in a bid to prevent banks from collapsing should another credit crisis occur.
"Uncertainty is much less when you start in a strong capital position, so we don't feel particularly constrained in thinking about acquisitions," Downe said.
The confident tone is a change from just a few months ago, when Downe and other Canadian bank CEOs sounded cautious about depleting capital levels before they knew more about what would be required under the new global framework.
Downe also said Bank of Montreal would increase its dividend as soon as its payout ratio fell back within its 45 percent to 55 percent target range.
"Dividend growth is an important indicator of the performance of a company and we're committed to growing our dividend over time," Downe said.
"The dividend is still slightly above that payout ratio, so as the earnings of the company grow and it comes back within the ratio, that will define the moment in time that we have our next dividend increase."
BMO's high payout ratio among its Canadian peers had prompted some analysts to speculate it was most at risk of cutting its dividend during the financial crisis.
With the worst of the recession behind the Canadian banks, talk has turned to when they might increase dividends, and BMO is expected to be one of the last to boost the payout, according to analysts.
(Reporting by Andrea Hopkins; editing by Rob Wilson)