Source: The Canadian Press

Bank of Montreal (TSX:BMO) is buying a Hong Kong-based portfolio manager that focuses on emerging markets, in a deal the Canadian bank hopes could be a platform for further expansion in lucrative developing economies.

The bank said Tuesday it has made a definitive agreement to acquire Lloyd George Management, an investment manager with about US$6 billion in assets under management, for an undisclosed price.

One analyst estimates the deal could be worth about $100 million.

Bill Downe, BMO’s chief executive, said the bank’s most recent investment in China reflects an opening up of the Chinese economy, where its businesses will likely be a growing contributor to BMO’s earnings.

The timing of the Lloyd George announcement “is just about perfect” because it gives BMO on-the-ground investment management capability in Hong Kong, Downe said at a Canadian bank CEO conference in Toronto.

“The high net worth Chinese investor is moving capital from the mainland to Hong Kong and then Hong Kong to North America and Europe in search of investment returns and this puts us exactly where we want to be in that pipeline.”

Lloyd George Management was founded in 1991 and specializes in Asian markets and emerging international markets with about 80 employees at operations in Hong Kong, London, Singapore and Mumbai as well as Florida.

With emerging markets expected to continue to grow at a faster pace than those in Europe and North America, Canadian banks and insurers have been scooping up assets in Latin America, India and Asia as part of their growth strategies.

The Lloyd George acquisition would meet two of BMO’s priorities for growth because it beefs up the bank’s wealth management division as well as its presence in emerging markets, said Gilles Ouellette, president and CEO, BMO Financial Group’s private client division.

“It’s an expansion of our asset management business in an area where we think there’s going to be a lot of growth. We as Canadians are underinvested in emerging markets,” he said.

“There’s much more emphasis on these emerging markets than in North American markets because their economies are growing faster and they’re expected to keep on growing faster for the foreseeable future.”

Ouellette added that the acquisition would complement the bank’s established presence in China, where it opened the first branch of a Canadian bank in October.

“We’re trying to expand our wealth management business in China,” he said.

“These are businesses that are just starting out in China and at the rate that wealth is being created in China, we see this as a great opportunity,” he said, adding that the bank is looking for other opportunities in the rapidly developing country.

BMO’s business activities in China include a banking subsidiary, M&A advisory services and a 29% interest in Chinese fund management company Fullgoal Fund Management Co.

BMO said it will offer jobs to all of Lloyd George’s staff members and that Robert Lloyd George will remain chairman of the company, which will keep its name as Lloyd George Management.

Lloyd George said BMO was a natural partner in the business he built over the last two decades.

“They are a natural and complementary partner for our existing business and we look forward to developing assets under management together in the future,” he said in a release.

The transaction is expected to close in the fiscal third quarter, which ends July 31, pending regulatory and other approvals.

Michael Goldberg, a financials analyst at Desjardins, estimated that BMO is paying close to $100 million for Lloyd George.

He said BMO’s announcement is part of a trend in which Canadian banks are shifting their primary focus from conserving capital to deploying it in strategic acquisitions, now that they have increased clarity on new global capital requirement standards.

The BMO deal follows other acquisition announcements in recent months, including its own purchase of Marshall & Illsley Corp. in the United States, Royal Bank’s (TSX:RY) purchase of BlueBay Asset Management and TD Bank’s (TSX:TD) acquisition of Chrysler Financial for $6.3 billion.

Last month, Scotiabank (TSX:BNS) announced the acquisition of Nuevo Banco Comercial in Uruguay, continuing its trend of buying up assets in Latin America.

The trend of Canadian bank acquisitions will likely continue in 2011 and 2012, Goldberg wrote in a note.

“We generally view these acquisitions as positive as they lay the foundation for future earnings and dividend growth beyond what is available from modest organic growth alone,” he said.

John Aiken, an analyst at Barclays Capital, said BMO’s investment in Lloyd George adds to the bank’s presence not only in China, but in India and other markets that continue to garner interest from investors.

“This acquisition underscores the importance that the Canadian banks are placing on wealth management, particularly in the global context,” he wrote in a note to investors.

“Wealth management purchases provide lower-risk geographic expansion with reasonably stable earnings streams that do not require similar capital levels as traditional banking. Consequently, we believe that this trend will continue over the foreseeable future.”

Bank of Montreal shares traded at $58.41 on the Toronto Stock Exchange at midday, up 33 cents.