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BMO Financial Group to Acquire NY-based KGS-Alpha Capital Markets

  • Fixed income broker-dealer specializing in U.S. mortgage- and asset-backed securities
  • Acquisition is complementary to BMO Capital Markets' U.S. strategy
  • Acquisition adds experienced team, expands client footprint in the U.S. and makes BMO a leading broker-dealer in U.S. agency mortgage-backed securities

NEW YORK and TORONTO, May 1, 2018 /CNW/ - BMO Financial Group (NYSE, TSX: BMO) today announced that it has entered into a definitive agreement to acquire KGS-Alpha Capital Markets (KGS), a New York-based fixed income broker-dealer specializing in U.S. mortgage (MBS) and asset-backed securities (ABS) in the institutional investor market. The transaction is subject to receipt of required regulatory approvals and other customary conditions and is currently expected to close in BMO's fourth fiscal quarter. Terms were not disclosed.

Founded in 2010, KGS has built a reputation for providing institutional clients with innovative market-based structuring solutions and first-class client service. The company is a market leader in the structuring, trading and distribution in MBS and ABS product. KGS offers unique idea-driven and market-based structures to help clients manage their portfolios.

KGS has 135 employees, including 84 sales and trading professionals, concentrated in New York with seven other offices across the U.S.

The acquisition complements BMO Capital Markets' existing MBS trading business and immediately makes BMO a top tier dealer in securitized products with special emphasis on agency-backed residential and commercial MBS products.

"BMO has built a solid capital markets platform in the U.S.," said Pat Cronin, CEO, BMO Capital Markets. "The acquisition of KGS is highly complementary to our strategy, leverages our existing capabilities and allows us to better serve our clients. The size and scope of the MBS bond market represents a tremendous opportunity to continue to diversify our platform, and grow revenues with key new initiatives."

"KGS has developed a strong reputation with institutional investors by providing a differentiated value proposition through customized market-based solutions to manage risk," said Kelsey Gunderson, Managing Director and Head of Global Trading Products, BMO Capital Markets. "In making this acquisition, we are broadening our distribution and expanding our offering through proprietary manufacturing capabilities."

Upon closing, KGS-Alpha will be rebranded as BMO Capital Markets. The KGS management team, sales and trading professionals will become part of BMO Capital Markets' trading products group led by Mr. Gunderson. Corporate Support Area professionals will report to their respective areas within BMO.

"We are very excited to join BMO Capital Markets," said Levent Kahraman, CEO and Co-Founder, KGS. "BMO's strong brand recognition, balance sheet and culture of partnership will allow us to grow our business and enhance our capacity to service our clients."

The MBS bond market represents the second-largest U.S. fixed income securities market (behind U.S. Treasuries) with over $9.3 trillion in outstanding debt as of Q3 2017 and over $200 billion traded on a daily basis. KGS's inventory is about 96 per cent comprised of Agency (Fannie Mae, Ginnie Mae and Freddie Mac) MBS.

In connection with the transaction, BMO Capital Markets acted as financial advisor and Sullivan & Cromwell LLP and Osler, Hoskin & Harcourt LLP acted as legal counsel to BMO. Credit Suisse Securities (USA) LLC acted as financial advisor and Simpson Thacher & Bartlett LLP acted as legal counsel to KGS.

About BMO Capital Markets
BMO Capital Markets is a leading, full-service North American-based financial services provider offering corporate, institutional and government clients access to a complete range of products and services including equity and debt underwriting, corporate lending and project financing, merger and acquisitions advisory services, securitization, treasury management, market risk management, debt and equity research and institutional sales and trading. With approximately 2,500 professionals in 30 locations around the world, including 16 offices in North America, BMO Capital Markets works proactively with clients to provide innovative and integrated financial solutions.

BMO Capital Markets is a member of BMO Financial Group (NYSE, TSX: BMO) one of the largest diversified financial services providers in North America with $728 billion total assets as at January 31, 2018.

Certain statements in this press release are forward-looking statements under the United States Private Securities Litigation Reform Act of 1995 (and are made pursuant to the 'safe harbour' provisions of such Act) and applicable Canadian securities legislation. These forward-looking statements include, but are not limited to, statements with respect to the expected closing of the proposed transaction, plans for the acquired business and the financial impact of the proposed transaction and are typically identified by words such as "believe", "expect", "anticipate", "intend", "estimate", "plan", "will", "should", "may", "could" and other similar expressions.

By their nature, forward-looking statements are based on various assumptions and are subject to inherent risks and uncertainties. We caution readers of this press release not to place undue reliance on our forward-looking statements as the assumptions underlying such statements may not turn out to be correct and a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Such factors include, but are not limited to: the possibility that the proposed transaction does not close when expected or at all because required regulatory approvals and other conditions to closing are not received or satisfied on a timely basis or at all; the terms of the proposed transaction may need to be modified to satisfy such conditions; the anticipated benefits from the proposed transaction are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations (including changes to capital requirements) and their enforcement, and the degree of competition in the geographic and business areas in which KGS-Alpha's business currently operates; the ability to promptly and effectively integrate KGS-Alpha's business; reputational risks and the reaction of KGS-Alpha's customers and employees to the transaction; diversion of management time on transaction-related issues; and those other factors set out on page 31 of BMO's 2017 Annual Report. We caution that the foregoing list is not exhaustive of all possible factors. These factors should be considered in addition to other uncertainties and potential events, and the inherent uncertainty of forward-looking statements.

BMO does not undertake to update any forward-looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf, except as required by law.

SOURCE BMO Financial Group


 

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