Saturday, April 30, 2011

BMO's Marshall & Ilsley has 10th Straight Loss... Home Turf is Much Safer.

According to a recent Dow Jones newswire, Marshall & Ilsley Corp., (MI) the American bank that was recently bought by Canada's Bank of Montreal, (BMOBMO.T) has now had its 10th straight quarterly loss. The bank, however, based in Wisconsin, has been improving in recent months as the amount of money that it must put aside for defaulting loans has been declining. Nonetheless, the bank is struggling desperately to make a profit and it still owes the U.S. government 1.72 trillion dollars in bailout money. BMO has agreed to cover the loan once their deal to buy the troubled bank closes. 

In the last three months, Marshall & Ilsley lost 116.6 million dollars. Which is why the fact that BMO paid 4.1 billion dollars for the bank is so disturbing for many shareholders, like myself. Net charge-offs, loans lenders don't think are collectible, rose to 4.8% of average loans from 3.9% a year earlier, and Non-performing loans, those near default, fell to 4.5% from 4.6%. 

Merging their U.S. Harris banking unit with under performing Marshall & Ilsley may not bode well for investors. But economies of scale are very important in the U.S. banking industry and BMO hopes that more branches and more assets down south will help them finally generate a reasonable return on their American investments... which as of yet, account for less than 10 percent of the bank's income... well behind the Canadian leader in the U.S., TD Bank.  

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