BMO to sell truck, trailer financing businesses to Stonepeak

Bank of Montreal agreed to sell its business that finances trucks, trailers and equipment to Stonepeak, offloading a portfolio that totals about C$14.5 billion ($10.6 billion).

BMO expects to record a net after-tax charge of about C$900 million in the third quarter, according to a statement Monday. Stonepeak will buy the businesses with a cash consideration, which wasn’t disclosed, and an earnout that’s contingent on certain targets.

The Canadian bank expects to use a portion of the payments to amass a roughly 19.9% stake in the new entity. The deal is expected to close in the fourth fiscal quarter. Bloomberg News reported last year that the bank was exploring a sale of its transportation finance business.

BMO has been selling US loan portfolios that it considers non-core in an effort to reposition the unit’s balance sheet and improve return on equity. In 2023, BMO sold a portfolio of recreational vehicle loans to a group led by KKR & Co.

“We’re allocating capital to areas with strong potential for long-term value creation while obtaining an equity interest in future income of the transportation and vendor finance businesses through a more capital efficient structure,” said Aron Levine, president of BMO US.

Stonepeak, which is based in New York, is an alternative asset manager that oversees about $88 billion in assets. The company focuses on sectors including transportation and logistics, digital infrastructure, energy and real estate.

Capital Relief

The deal offers BMO an exit from a business that has “caused a measure of indigestion for the bank over the past few years,” Jefferies Financial Group Inc. analyst John Aiken wrote in a report to clients.

While BMO is set to retain a minority interest and is “not completely free,” Aiken said that on balance he views the deal as a positive, giving the Canadian bank capital relief and a lift to its ROE.

“The sale should leave BMO with a greater mix of loan asset classes with better growth profiles,” wrote Toronto-Dominion Bank analysts led by Mario Mendonca. “The partnership with Stonepeak may also create potential opportunities to scale the platform outside BMO’s balance sheet.”

The unit evolved from GE Capital’s transportation finance business in the US and Canada, which BMO acquired in 2015.