BMO expands U.S. retail structuring group, seeks distribution partners

By Emma Trincal

New York, July 26 - BMO Capital Markets, the North American brokerage arm of Bank of Montreal, is building up its New York-based structured products operation in an effort to capitalize on the structuring expertise of the global group and the creditworthiness of the issuing entity, Bank of Montreal.

Luke Seabrook, head of the financial products group at BMO Capital Markets in Toronto, told Prospect News that BMO wants to build a competitive structured note platform for the United States and to partner with third parties for distribution.

"The mandate for us is not that brand new. We're staffing in New York, but we've been offering structured products for a while, notably we've been offering equity-linked CDs in the U.S. for a couple of years through Harris' CD platform," he said.

The CD business in the United States debuted in 2007, he said.

Harris NA, a Midwest financial services organization, has a network of community banks in the Chicago area and wealth management offices across the United States, according to BMO's web site.

Note platform

"What we've recently launched is a note platform. We've seen an opportunity to expand the success we've had with our CD platform with a new note platform. This gives our investors the choice to get exposure through a CD or through a note," Seabrook said.

Key hires

The expansion of the structured products business into the United States began in March with the hiring of Laurence Kaplan from Royal Bank of Canada. Kaplan joined BMO as managing director and head of the U.S. and Latam retail investors solutions group in New York.

Kaplan's expertise is in retail structuring and sales, a role he held at RBC for seven years.

At BMO, Kaplan focuses on the marketing of customized investments to third-party broker-dealers and registered investment advisers in the United States and Latin America.

The other leg of the new structuring note platform is Johan Wahlstedt, managing director and head of U.S. derivative equity trading. He also joined from RBC, where he was co-head, structured equity and commodity.

Business plan mode

The new group is still a work in progress, Kaplan and Seabrook said, as the focus is on preparation and planning rather than issuance at this point.

Seabrook said that his goal is to build a strong business based on key partnerships with U.S. distributors and firms and to develop products in response to the evolving needs of U.S. retail clients. Rather than "pushing" new products, he wants to build a good foundation for the new U.S.-based operation.

"The mandate of our business is not to simply generate notional. It's to create timely products that satisfy investors' demand," he said.

Since the group began to operate, Bank of Montreal has issued two offerings registered with the Securities and Exchange Commission, according to Prospect News.

One was a $50 million issue of redeemable range accrual notes due April 28, 2020 based on the performance of Libor, according to an FWP with the SEC.

The other, much smaller in size, was $350,000 of zero-coupon principal-protected commodity-linked notes due Oct. 30, 2015 linked to six subindexes of the Dow Jones - UBS Commodity index.

"We're still formalizing our business plan and building up our infrastructure," Kaplan told Prospect News.

BMO, which employs 1,000 people in the United States, has recruited 112 professionals in the U.S. alone this year.

Besides the two key executives responsible for the New York operation - Kaplan and Wahlstedt - BMO added several other key New York-based structurers. A few of those came from RBC as well, according to market sources.

Forming alliances

BMO's approach to building its U.S. platform is to partner with other firms, a role in which Kaplan "excelled" in the past, according to a sellsider at a rival firm.

"Our client base is going to be private banks, investment dealers and registered investment advisers. We will build the products for them," said Kaplan.

"We're a product manufacturer. We want to partner with New York clients that fit our thought process. We will partner with other parties for distribution, including broker-dealers, private banks like JPMorgan for example," said Seabrook.

Single A issuer

However, Seabrook drew a line between issuance and distribution plans.

"We will be working with other agents. But we will not be renting our balance sheet to let other firms use our name as an issuer," he said.

Bank of Montreal's creditworthiness is one of the best selling points for BMO's retail structured note venture, sources said.

"Our competitive advantage relative to some of our U.S. peers is that we clearly saw demand for us as counterparty," said Seabrook.

"In general, the strength of Canadian banks' credit has created a clear appetite for Canadian bank exposure."

Bank of Montreal is rated Aa2 by Moody's Investors Service and A+ by Standard & Poor's.

Six-year-old business

U.S. brokers and retail investors may not yet be familiar with the BMO brand or Bank of Montreal, the issuer.

But Seabrook said that the firm has a long experience in the space it wants to take advantage of.

"We've been a structured products manufacturer since 2004," said Seabrook.

"Our approach to the business is to capitalize on our experience to create diversified, high-quality products that can satisfy investors' demand and that are issued by a bank with strong credit ratings," he added.

As head of financial products in Toronto, Seabrook oversees a trading and origination group that encompasses derivatives, structured products and structured finance at a global level.

Prior to joining BMO 2004, Seabrook was executive director of equity structured products at CIBC World Markets and vice president, financial institutions, at Citigroup.

Seabrook said that as the head of the financial products group, he is responsible for "all the derivatives business, which includes interest rates, equity, commodities, long-dated FX and prime brokerage."

The global retail structured products business is handled by Deland Kamanga, managing director of financial products out of Toronto, to whom Kaplan reports, he noted.

Responding to demand

Seabrook said that he wants the U.S. structured notes platform to be flexible and adjust to demand.

"We're not limiting ourselves to a specific asset class. We have the capacity to offer products linked to equity, interest rates, commodities, currency, based on investors' demand," Seabrook said.

"We feel that this is a business that allows us to be responsive to investors' demand and market trends. To the extent that retail investors are investing, we should be issuing. We have the capabilities to create many different products that will allow investors to express their views," he said.

BMO Capital Markets has more than 2,200 employees operating in 15 North American offices and 27 offices worldwide.

BMO Capital Markets is a member of BMO Financial Group, a diversified financial services provider in North America with $384 billion total assets and 37,000 employees as at April 30, 2010.

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