Bank of Montreal overtook Canadian lenders including Royal Bank of Canada (RY) and Toronto-Dominion Bank for arranging stock sales in the first half of the year after leading some of the country’s biggest initial public offerings.
The lender’s BMO Capital Markets unit arranged 19 equity financings that raised $2.25 billion in the first six months of 2013, surpassing the $1.8 billion RBC Capital Markets arranged in 21 deals, according to data compiled by Bloomberg. BMO has never taken top spot on a full-year basis in data dating to 1999, and has only been first once in a six-month span -- the second half of 2010.
BMO was second only to Goldman Sachs Group Inc. (GS:US) over the first six months of this year, which ranked No. 1 after arranging a $2.3 billion share sale for Valeant Pharmaceuticals International Inc. (VRX)
“It’s a feather in their cap,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion ($3.8 billion) including bank shares. “Royal Bank is often viewed as the leader by far of IPOs and stock underwritings in Canada, so I’m surprised.”
BMO is gaining a greater share of Canadian deals after winning mandates from companies including Detour Gold Corp. (DGC) and insurer Great-West Lifeco Inc. (GWO) and managing IPOs such as the sale of Ski-Doo maker BRP Inc. The country’s fourth-biggest bank says it’s landing more deals after years of cultivating business from Canadian companies.
“These are very long-term relationships, we’re speaking decades in some cases,” Darryl White, BMO’s global head of investment and corporate banking, said in a June 25 interview. “What you see is really just the sharp end of the spear when the transaction occurs, but it’s the result of a whole bunch of work that’s been done and services that have been provided.”
The rankings are based on Canadian IPOs, secondary sales and convertible debentures and exclude preferred-share sales. The figures and rankings are current as of today and are subject to change as more transactions are recorded.
A year ago, RBC was top arranger using those criteria in the first half, with Toronto-Dominion’s TD Securities second and BMO third, according to the data. Goldman Sachs didn’t rank.
BMO was second behind RBC for arranging deals for all of last year, the data show. In 2011, BMO was third behind top-ranked TD Securities and second-ranked RBC. BMO was second after RBC in 2010, and in 2009 was in fifth spot.
Michael DuVally, a spokesman for Goldman Sachs, and TD Securities’s Wojtek Dabrowski declined to comment on the rankings.
BMO advanced after leading banks arranging IPOs. The Toronto-based firm led BRP’s C$262.3 million sale in May, the same month it helped on Oryx Petroleum Corp. Ltd.’s C$250.5 million IPO. BMO also led Milestone Apartments Real Estate Investment Trust’s C$200 million IPO in February and Agellan Commercial REIT’s C$134.6 million sale the month before.
“IPOs have had a lot to do with it,” White said. “Those aren’t brand-new relationships, either. They’re cultivated over a long period of time.”
Profit from investment banking rose 28 percent at BMO to C$585 million for the six months ended April 30 from a year earlier, according to company financial statements. That was helped by a 29 percent increase in underwriting and advisory fees, which added C$268 million of revenue in the period.
“It’s very important for the bank,” Brad Smith, an analyst with Stonecap Securities in Toronto, said in a June 26 interview. “How you win these mandates determines how profitable they are for the bank as a whole.”
BMO’s rise among equity underwriters comes after a 17 percent decline in stock sales from a year ago. Canadian companies raised $12.8 billion in equity financings this year, down from $15.5 billion in the first six months of 2012.
“They’re No. 2 in probably one of the more difficult periods in capital markets,” said Smith, whose firm rates Bank of Montreal (BMO) stock “underperform.”
IPOs, meanwhile, have almost doubled from a year ago, driven by REIT sales. Canadian companies raised $1.4 billion from initial sales this year compared with $851 million in the first half of last year.
“Greater investor confidence and less volatility in the market set the stage for a more active IPO calendar over the course of the first part of the year,” Kirby Gavelin, RBC’s head of equity capital markets in Canada, said in an interview. “We’ll continue to see more acquisition-related equity financing and the IPO market will continue to be robust, though we may not see the return to prior levels of activity we’ve had in the resource sectors” such as mining and energy.
The surge in REIT IPOs may continue, providing the market for the high-yielding securities recovers from a two-month market sell-off sparked by rising interest rates.
“Investors still view the REIT space as a place they like and intend to invest,” Peter Miller, BMO’s head of equity capital markets in Canada, said in an interview. “There are still a lot of REIT IPOs in the pipeline, so if the market firms up we should expect continued heavy activity from the REIT sector.”
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