BMO reportedly expresses interest in U.S. banking unit of BNP Paribas

(Bloomberg) – Bank of Montreal has expressed interest in buying the U.S. banking arm of BNP Paribas SA, people familiar with the matter say, a potential deal that would boost its U.S. presence.

The Canadian lender has held initial talks on an acquisition of BNP Paribas’ Bank of the West unit, the sources said, asking not to be identified while discussing confidential information.

BNP Paribas shares rose 3.7% on Thursday. The stock was up 2.4% at 5:29 p.m. Paris, giving the company a market value of 72 billion euros ($81 billion). Bank of Montreal shares rose almost 1%.

The French bank is working with advisers to explore a sale of the business, Bloomberg News reported last month. Bank of the West had a book value of about $13.7 billion as of September 30, according to data from the Federal Deposit Insurance Corp. – an approximate measure of the value of a sale.

US regulators have been slow to approve bank mergers lately, which could complicate the talks, people say. Other suitors, including in Canada or the United States, could also emerge to bid on Bank of the West, the sources said.

Beyond Bank of Montreal, potential candidates for the company could include the Toronto-Dominion Bank as well as Pittsburgh-based PNC Financial Services Group Inc., according to Bloomberg Intelligence.

Deliberations are ongoing and there is no certainty that they will result in a transaction, the people said. Representatives for BNP Paribas and Bank of Montreal declined to comment.

A deal would follow a wave of foreign outflows from the US banking sector, as lenders in countries such as Spain, Israel and Japan take advantage of high valuations and a hot bid market to offload non-core franchises. Canadian lenders, meanwhile, are looking to expand into the US, as their own banking market is stable but lacks strong growth potential.

Bank of Montreal, one of Canada’s Big Five banks, already has a significant presence in the U.S. Midwest since its acquisition of Harris Bankcorp in the 1980s and a $4.1 billion takeover of Marshall & Ilsley ten years ago. San Francisco-based Bank of the West would complement this franchise and expand its reach throughout the western United States.

For BNP Paribas, Europe’s largest bank by assets, a divestiture could pave the way for an acquisition in Europe or Asia, or higher capital returns for shareholders. Italy’s UniCredit SpA saw its shares jump earlier this month after CEO Andrea Orcel announced a massive takeover over the next few years.

BNP Paribas has owned Bank of the West since 1979 and has viewed it for most of that time as a key source of stable funding. The unit had $105 billion in assets as of September 30 and 537 retail banking locations, mostly in the western United States, according to filings.

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