M&I acquisition changes Milwaukee’s banking landscape

It will be a while before the words “BMO Harris Bank” ring as familiar to Wisconsin residents as “M&I Bank.”

That will be one of the immediate challenges for BMO Financial Group in the aftermath of its recent acquisition of Milwaukee-based Marshall & Ilsley Corp. After all, the M&I brand had been a force in Wisconsin since its founding in 1847 by Samuel Marshall and Charles Ilsley.

With the acquisition, Wisconsin’s largest bank is suddenly owned and operated by a Canadian company.

The acquisition also changes the banking industry’s landscape in Milwaukee, as competitors are trying to seize market share (see sidebar).

Expect to hear the Toronto-based parent firm of the Bank of Montreal trumpet its “Bee-Mo” brand loudly over the next few years, as it attempts to defend its Wisconsin turf.

Of course, the name is not the only thing changing at the former M&I headquarters in downtown Milwaukee. Although former M&I chief executive officer Mark Furlong keeps his job with BMO Harris Bank, he moves to Chicago.

The top officers overseeing the day-to-day Wisconsin operations of BMO Harris Bank are now Brad Chapin, executive vice president of personal banking, and Ken Krei, executive vice president of global private banking. Chapin previously served as executive vice president of consumer banking for M&I, and Krei was chairman, president and CEO of Marshall & Ilsley Trust Company and chairman and CEO of M&I Investment Management Corp

BMO Harris may have put its first public relations challenge – Furlong’s $18 million golden parachute at a time when M&I still owed U.S. taxpayer debts – on ice when it paid off M&I’s $1.7 billion Troubled Asset Relief Program (TARP) obligations.

Another marketing splash was made in Milwaukee with the news that BMO Harris will extend M&I’s stage sponsorship at Summerfest by five more years.

BMO Harris also announced it is making $5 billion in credit available to small and medium-sized businesses in the Midwest, Arizona and Florida over the next two years.

On the day BMO closed on its acquisition of M&I, BizTimes conducted an interview with Furlong and Bill Downe, president and chief executive officer of BMO Financial Group. The following are excerpts from that interview.

 

BizTimes: Let’s start with the acquisition announcement. The fact that BMO could afford to pay off M&I’s TARP debt and assume some of the bad debt still on M&I’s balance sheet speaks directly to the strength of BMO’s finances, doesn’t it?

Downe: “I think it speaks to two things: the size and the strength of BMO’s balance sheet – very important. The credit portfolio that M&I has been working its way through the downturn has had a lot of visibility. The second thing it speaks to is the progress that has been made in working through problem loans, cleaning the portfolio, and the confidence that we have in the core business of the bank – very good long-term customers and profitable customer relationships. Those put together are what made the TARP repayment and our commitment today to a significant increase in commercial lending on the part of the combined bank possible.”

BizTimes: Was some of what played into this a general feeling that the Canadian banking system is more tightly regulated and didn’t bust the way many American banks did? Did that play a factor as well?

Downe: “I couldn’t speak that broadly. I would say there were a number of banks in Europe that had characteristics like the Bank of Montreal where they had avoided risk concentrations that had really put a lot of stress on the banking industry as a whole and came through the downturn in much better shape. I guess it’s a reflection in the general sense, but I would say there are specific banks in every jurisdiction that have performed well. Good regulation, good management and good diversification.”


BizTimes:
Was there anything else that made M&I an attractive target for takeover? It certainly brought some challenges.

Downe: “We had a long-term good relationship with management and directors at the bank. The value systems at the two institutions are very closely matched – commitment to the customer, belief in long-term banking relationships and understanding that trust is built on years of performance. I see a depth of management talent in the bank in the heat of the last three years may have not gotten as much recognition as they may have deserved. But when we put together the combined management team, there are people from both banks in leadership roles.”

BizTimes: Can you give our readers some idea of how this came together? Did BMO approach M&I or did M&I approach BMO?

Downe: “Well Steve, that’s a chicken-and-egg type of question, I’m not sure I can put my finger on it…”

Furlong: “We had a dialogue over a long period of time. It was focused on what’s the competitive market going to look like in the future and how do we position the banks to take advantage of it. My relationship with Bill goes back a decade, Bill had a relationship within the organization with my predecessors that goes even farther back, and in the fall of 2010, we looked at a few different options, and one of which was we wanted to partner with somebody, and this long relationship with Bank of Montreal, and the Harris Bank team and understanding what each one values made the next steps much easier than if we were just new acquaintances trying to understand each other.”

BizTimes: Mark, are you saying you were considering finding a partner, which put this into motion?

Furlong: “That was one of the alternatives we considered.”

BizTimes: You’ve said the full integration of the banks will take 18 months. How long will it take for customers to see signs change at their local branches and the new name on their checks?

Furlong: “In terms of checks, when their check stocks are up, they will begin to see the new logo on the next check order. The signs won’t change till we get the conversion date, but there will be a sticker or tag on the door so that anyone that walks in will know we are a part of BMO Financial Group. In Chicago, there will be a new sign on the headquarters building tomorrow and then over a period of time in the next 12 to 15 months or so, they’ll go through the normal sign changing process there as it makes sense and fits in.”


BizTimes:
If I could focus on downtown Milwaukee for a moment, what will be the impact on the headquarters building? Can you speak to the function of that building and the level of employment at that building?

Furlong: “This will continue to be the main office for M&I in Wisconsin. It would continue to have significant employment here. There may be others that get relocated to the building because we have more space, and Harris is in the process of growing, so you’ll see a lot of visibility from M&I in the community.”


BizTimes:
So how many employees are employed there now, Mark, and which direction do you expect that to go next year?

Furlong: “I don’t have any sort of head count.”


BizTimes:
OK. Would you expect the workforce over the next year or two to be reduced because of redundant job functions with the merger, or do you expect it to increase?

Furlong: “In the next 15 months, I guess there’d be a decrease due to duplicative capability. Then if you look at a four- to five-year period, I bet you’d get a lot closer to neutral. We are here to grow the business, and so you’ll see positions added back, and other consolidation of activities in Wisconsin will be the beneficiaries of some of that.”

BizTimes: In the near term, are we talking about dozens or hundreds of reductions?

Furlong: “I don’t think we are in any position to speculate at this point. It’ll happen in the future. As we get to that moment, we will be more explicit.”


BizTimes:
OK. M&I has extended its foreclosure moratorium. What will the status of that be after the integration?

Furlong: “I think everybody in the market knows that M&I is focused on keeping homeowners in their homes and they have the ability and intent to do that. That reputation is already out there. We have folks that come to us that figure out how to solve it with us. I think the actions of M&I will support the fact that we are trying to keep folks in their homes.  We are coming out with a five-year commitment that’s intended for small to mid-size businesses in the Midwest, as well as Arizona and Florida. And then, really, it’s at the point that ensuring the market that we are open for business and that we want to grow the portfolio and we are well aware that too many businesses feel like they don’t have the ability to get the financing they’d like, and this is our commitment to provide that financing.”


BizTimes:
The M&I Foundation – how will this integration affect the foundation?

Furlong: “This has no effect on the foundation. It is a separate legal entity to its own. It has a separate board of directors and it will continue on.”

BizTimes: Strategically, how will the integrated bank protect M&I’s market share in Wisconsin?

Downe: “I think in the state of Wisconsin we have very high expectations for the business enterprise. We think the breadth of what we do, the history at BMO that we have goes back a long way, either through Harris or the Bank of Montreal, and so the enthusiasm we have for the state will be a defining characteristic. As CEO of the BMO Financial Group, I’ve been here in the market prior to this transaction, meeting with a number of clients and prospects, and I may be back in this market frequently. I expect to visit Milwaukee as frequently as any city in our system. It’s going to have a lot of attention from the whole organization in the belief of economic growth, and we want to be a part of it. Mark has been working with his new management team to find this strategy – I’ll let him have the last word.”

Furlong:  “Six and a half months together, the team is completely gelled. A complete understanding of all segments we’re interested in, some of which is that smaller/mid-size businesses. We have great interest in focusing on the consumer segments too, so you’ll continue to see that focus in the community, as well as deep support of community organizations throughout Wisconsin. We understand it’s all about how well you serve the customer, and if you do well with one customer, they’ll be an advocate for the next one. As Bill mentioned, he has met a lot of our customers. For those on the team that haven’t, we’ve made a lot of introductions and a lot of headway with that.”

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