Bank of Montreal Says F&C Attractive Even After Withdrawals

Bank of Montreal said it still considers its $1.2 billion takeover of F&C Asset Management Plc “attractive” even after the U.K. money manager disclosed a key client will pull more money from its funds.

The announcement “doesn’t change our view that the transaction is attractive from a strategic, financial and cultural perspective,” Paul Deegan, a Bank of Montreal spokesman, said today in an e-mailed statement. “We continue to see good opportunities for revenue growth from the combined business, given the complementary nature of the distribution and product capabilities.”

Friends Life Group Ltd. will withdraw 14.5 billion pounds ($24 billion) by year end, London-based F&C said today in a statement. That represents 18 percent of F&C’s assets under management, and adds to 20.3 billion pounds of outflows last year from key clients as their contracts matured.

Bank of Montreal agreed Jan. 28 to buy F&C, the manager of the oldest U.K. investment fund, for 708 million pounds in the second second-largest takeover in the bank’s 196-year history. Canada’s fourth-biggest lender by assets agreed to pay 120 pence a share in cash in a transaction is scheduled to be completed in the third quarter.

Bank of Montreal rose 13 cents to C$72.37 at 4 p.m. in Toronto. F&C’s stock has fallen 1.9 percent since Bank of Montreal’s offer.

‘Legacy Relationships’

Gilles Ouellette, Bank of Montreal’s group head of wealth management, said in a Jan. 28 conference call with investors that the Toronto-based lender anticipated additional withdrawals “over the next couple of years” from F&C’s strategic partners, who account for more than half of the firm’s assets under management.

“Our valuation analysis and offer reflects the nature of the legacy relationships as well as the momentum of the consumer and institutional business,” Deegan said.

Outflows from F&C’s strategic partners, including Dutch insurer Achmea BV, helped pare assets under management by 14 percent to 82.1 billion pounds as of Dec. 31, the fund manager said in a March 13 statement.

“The group faces significant headwinds in the short term as our strategic partner assets decline,” Chief Executive Officer Richard Wilson said in the statement. “The annualized loss of revenue associated with them remains significant.”

The outflows will reduce revenue by about 24.3 million pounds and F&C won’t be able to cut costs to compensate this year, the company said.

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