Bank of Montreal’s latest acquisition, F&C Asset Management plc, may be in line for a credit rating upgrade in the wake of the deal’s announcement earlier this week.
Standard & Poor’s Ratings Services has put its ratings for F&C on CreditWatch with positive implications, indicating that there’s at least a 50% chance that it will upgrade the firm following the acquisition. S&P says that it expects the deal, which is subject to shareholder and regulatory approvals, to close by May.
The rating agency notes that although F&C’s has seen assets decline recently, these reductions were primarily due to the withdrawal of strategic partners, which were previously announced. “F&C has shown improving momentum in attracting third-party assets,” it notes, with £1.26 billion of net inflows from consumer and institutional clients in 2013. It also observes that F&C’s cost reduction program “remains on track.”
Looking ahead, S&P says that F&C’s acquisition by a financially stronger entity will likely be positive for its creditworthiness, and the prospect of support from BMO (TSX:BMO) if it ever needed it. Indeed, the firm says that any upgrade would depend on the likelihood of potential extraordinary support for F&C from BMO.
In resolving the CreditWatch, which will likely occur once the deal closes, S&P says that it will review F&C’s longer-term strategic importance to the overall bank, and the possibility of any extraordinary support.
“We note that BMO has a track record of support for its subsidiaries,” it says, adding that if it sees clear evidence that BMO would extend this support to F&C, it would likely designate F&C as a “moderately strategic” or potentially a “strategically important” subsidiary; which would translate into either one, or three, notches of uplift to its existing credit profile.