Canadian bank says it’ll use proceeds to target U.S. private clients. Canada’s BMO Financial Group has agreed to sell Harrisdirect , its U.S. discount-brokerage unit, so it concentrate on providing wealth-management services to U.S. clients. The Toronto-based company says the sale was prompted by a desire to sidestep an increasingly tight and expensive race in the discount arena while using funds from the transaction to invest in more lucrative business lines.

BMO – better known as the Bank of Montreal – will sell Harrisdirect to E-Trade, a New York-based discount broker, for $700 million in cash. BMO will get another $50 million from Harrisdirect once the deal is done. Harrisdirect has about 430,000 active accounts and $32 billion in assets under administration. The transaction has nothing to do with BMO InvestorLine, BMO’s Canadian discount brokerage unit.

Way out

“The decision to sell Harrisdirect followed an assessment of [its] ability to compete in a changing landscape,” says BMO’s president and CEO Tony Comper. “Given the additional amount of capital that would have been required to grow the business and remain competitive in the current environment of consolidation, we concluded that Harrisdirect would be more valuable to another participant in the online brokerage industry.”

A conspicuous element in the “environment of consolidation” is Ameritrade’s planned acquisition of rival online brokerage TD Waterhouse, made public less than two months ago. That came after Ameritrade spurned an offer from E-Trade. Discount brokers, which saw their valuations soar in the dot-com craze of the late 1990s, thudded back to earth in the market downturn of 2000-2002. Price cuts and smaller commissions in the face modest equity returns since then have done little to improve their fortunes.

While some online brokers see fusion as a way out of their problems, others have increased their efforts to cater to high-net-worth clients. San Francisco-based Charles Schwab, the biggest discounter, bought U.S. Trust in 2000 as a way “to serve the investment and wealth management needs of investors at every stage of their financial growth,” according to an old press release. Schwab is also the biggest service agent to independent registered investment advisors. And it’s far from lonely in its pursuit of high-net-worth wallet share. Wirehouses, regional brokers, banks of all sizes and a host of boutiques have piled into wealth management in recent years. All of them are looking for a reliable and sticky revenue streams for helping a growing demographic of well-heeled clients plan for their retirements or manage their estates, depending, more or less, on how wealthy they are.

For its part, BMO sees ditching Harrisdirect as a way to strengthen its push into that arena. “This transaction increases value to our shareholders and will allow us to redeploy capital to higher-return businesses and to concentrate our attention on our goal of becoming the leading personal and commercial bank in the U.S. Midwest,” says Comper.

New focus

And Comper’s colleague Bill Downe, BMO deputy chairman and head of BMO Nesbitt Burns, the bank’s traditional brokerage business in Canada, makes it clear that wealth management figures prominently in BMO’s plans. “Wealth management will continue to be an integral part of our overall personal and commercial-led U.S. strategy,” he says.

Downe sees the private bank of BMO’s Harris unit, a Chicago-based regional bank, as its wealth-management flagship in the U.S. “Harris Private Bank has an excellent reputation, strong brand recognition and an attractive customer base,” he says. “Wealth management is a profitable, high-growth industry and we believe we are well-positioned to participate in this growth.” But BMO isn’t volunteering specific insights into its expansion plans.

In addition to its private bank, Harris also owns Redwood City, Calif.-based Harris myCFO, a multi-family office, and Sullivan, Bruyette, Speros & Blayney, a financial planning firm based in McLean, Va. –FWR

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