BMO can use Bank of the West in a best-of-breed US mobile revamp

The news: BMO announced that it will buy Bank of the West from BNP Paribas in a deal worth $16.3 billion, publicly confirming prior talks.

The combination will give Canada-based BMO significant US scale:

  • It adds almost 1.8 million new US customers
  • It nearly doubles its US branch footprint by including 514 locations.

More on this: The tie-up is expected to wrap up by the end of 2022—regulatory approvals will be needed—with Bank of the West being merged into BMO Harris, which is BMO’s US retail banking arm.

We believe this timeline is realistic: The deal is unlikely to be blocked by regulators. The combined entity’s asset-based size isn’t big enough to raise concerns, and its branch footprint won’t have a significant geographical overlap.

To give a ballpark estimate of national size, the combination would make BMO Harris the 13th-largest US commercial bank by consolidated assets, per Federal Reserve data as of September 30, 2021, with a total figure of about $271.6 billion.

  • BMO Harris was 23rd as of this date, with nearly $166.2 billion.
  • Bank of the West ranked 32nd, with about $105.4 billion.

In its integration overview, BMO said it will take a “best of breed approach” for products, processes, and staff. The bank said it doesn’t plan on closing its acquired branches and will retain frontline branch staff. This is in line with the interest it has expressed in gaining a presence in California, which is home to about 70% of Bank of the West’s deposit base.

  • BMO pointed out that the state’s nominal GDP in 2020 was nearly double that of its home market, or $3.1 trillion versus $1.6 trillion.
  • Within California, it will get new retail-banking presences in the San Francisco, Los Angeles, and San Jose regional markets. These new markets are also projected to generate above-average household income growth from 2022 to 2027.

The opportunity: The tie-up could lead BMO to review and rework its US mobile app, which may benefit from its best-of-breed plans:

  • In our 2021 US Mobile Banking Emerging Features Benchmark, both BMO Harris and Bank of the West finished on the low end overall out of 23 sampled banks, with a tie for 16 and at 20, respectively.
  • However, each bank greatly outperformed the other in certain categories: Bank of the West was 6 in the Security and Control category, versus just 21 for BMO Harris. Meanwhile, BMO Harris performed much higher in Transfers (4 versus 20) and Digital Money Management (5 versus 15).
  • It can use any overhaul to improve in categories where both banks are lagging, such as Customer Service (both placed at 20) and Alerts (BMO Harris was 19, while Bank of the West was 20). It’s likely to look to its Canadian app for ideas.

A mobile revamp could help BMO boost its US mobile usage growth even further—it’s already growing faster than in Canada—even beyond adding Bank of the West’s customer base.