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Stock of the Day
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Bank of Montreal (BMO)
Bank of Montreal To Buy Diners Club From Citi
Bank of Montreal (BMO: Charts, News, Offers) said Tuesday that it will buy the Diners Club North American franchise from Citigroup Inc. (C: Charts, News, Offers). This deal gives BMO exclusive rights to issue Diners Club cards in the U.S. and Canada. The first Diners Club card charge was made on February 8, 1950 by Frank McNamara, Ralph Schneider and Matty Simmons (original founders) at Major's Cabin Grill in New York City, and it is recognized worldwide. But if you're an average American consumer, the chances are you have never heard of Diners Club before. In fact, Diners Club is the pioneer in what would later be called the "Travel and Entertainment" (T&E) card market, which focused on frequent travelers with a substantial income -- a market that is now dominated by American Express (AXP: Charts, News, Offers). Why would BMO even want to buy Diners Club from Citi? Is this a good move for BMO?
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| Stock Analysis |
Citigroup was among the hardest hit banks by the credit crisis last year, and it has received multiple bailouts from the government. As part of its recovery strategy, it created Citi Holdings, a portion of Citigroup that includes troubled or underperforming assets that the New York-based bank hopes to sell or wind down – essentially, anything that is not a part of its primary consumer and institutional banking operations. Diners Club is part of Citi Holdings and the international portion was sold to Discover Financial Services (DFS: Charts, News, Offers) in April 2008 for $165 million. The current sale of the Diners Club North American business to BMO is in line with its current strategy to optimize the assets and businesses within Citi Holdings. The sale is expected to reduce its assets in Citi Holdings by about $1 billion, but would have no material impact on its net income or capital ratios. So this sale is obviously beneficial to Citi, but what about BMO?
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The Bank of Montreal (in French, Banque de Montréal, and more commonly BMO) is the fourth largest bank in Canada by deposits. As part of its overall business, BMO has a thriving T&E card business that is geared toward its commercial customers – a business that is one of the fastest growing segments in the credit card industry. However, both the scope and scale of its commercial card business is dwarfed by both American Express and Diners Club. With Citi willing to get rid of Diners Club business under distress (note: the actual terms and price were not disclosed), BMO has the opportunity to catapult its profitable commercial card business to the next level. In one swoop, this deal will add $7.8 billion in card transactions and gives BMO net receivables of nearly $1 billion, more than doubling its current size. Frank Techar, the President and CEO of Personal and Commercial Banking at BMO Bank of Montreal, said in a statement, "The Diners Club North American franchise brings new card members to our company, provides attractive additional options for our existing customers and makes us an even more compelling choice in the market for prospective commercial customers in Canada and the United States."
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So it appears that this is a win-win for both Citi and BMO. The acquisition will immediately enhance BMO's competitive position by placing them among the top commercial card issuers in North America. Another potential gold mine is the fact that Diners Club has suffered from lack marketing and presence for years – especially, compare to American Express which has become a familiar name. This is another great opportunity for BMO to add a little fuel to the fire and bring back to life this once renowned name brand.
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Other Stuff Related to Bank of Montreal:
Bank of Montreal profit jumps 16% -- Canadians are worried about the economy and saving more, helped Bank of Montreal profitability.
StatPro Strikes Four-Year Contract With Bank of Montreal -- Bank of Montreal partners with StatPro Group plc to improve portfolio analytics, market data, and asset pricing solutions.
(BMO) Bank of Montreal - After Posting 3 Earnings Surprises in a Row, Fourth Quarter Estimates are Trending Higher -- Stock Blog Hub concludes that BMO still has attractive value characteristics and the stock is a buy.
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More Stocks in the News:
Amazon Gets Set for Holiday Cheer -- Amazon (AMZN: Charts, News, Offers) launched its Black Friday deals page earlier this week, is expected to do well and adds to its double-digit growth so far this year.
Freddie Mac Oct portfolio down, delinquencies jump -- We are not out of the woods yet! Freddie Mac (FRE: Charts, News, Offers) reported delinquencies accelerated to 3.54 percent in October from 3.33 percent in September and 1.34 percent in October 2008.
Dollar Tree profit beats; raises full-year view -- Dollar Tree (DLTR: Charts, News, Offers) beats expectation by 10 cents as shoppers flocked to discount retailer for lower prices.
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Profile |
Click here to view a detailed profile of Bank of Montreal.
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