The Bank of Montreal is expanding its U.S. capital markets footprint by acquiring KGS-Alpha Capital Markets, a New York-based fixed-income broker-dealer that specializes in U.S. mortgage- and asset-backed securities.
BMO Financial Group said the deal, for an undisclosed amount, builds upon and expands its existing mortgage-backed securities (MBS) trading business.
“The acquisition of KGS is highly complementary to our strategy,” Pat Cronin, chief executive of BMO Nesbitt Burns, said in a statement. “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.”
Increasing its capital markets business south of the border has been a focus for BMO and the acquisition of KGS helps the dealer scale up its presence in the second-largest U.S. fixed-income securities market, after U.S. Treasuries.
The MBS bond market had US$9.3-trillion worth of outstanding debt as of the third quarter of 2017, and more than $200-billion traded daily, BMO said.
Kelsey Gunderson, managing director and head of global trading products at BMO, said the bank already has a presence in the MBS bond market, which has been growing organically.
”It was really in its early stages and one of the nice things about this acquisition is it really helps jump-start that build that was already under way,” Mr. Gunderson said.
”This really takes us to the next level as it pertains to this particular area.”
KGS-Alpha, which was founded in 2010, specializes in the structuring, trading and distribution of mortgage-backed securities and asset-backed securities. Its inventory is 96 per cent composed of Fannie Mae, Ginnie Mae and Freddie Mac mortgage-backed securities.
KGS – which employs 135 people, including 84 sales and trading staff – serves primarily institutional investors. Its employees are concentrated in New York, but the company has seven other offices across the United States.
The deal is subject to regulatory approvals and is expected to close during BMO’s fourth fiscal quarter, which ends on Oct. 31. KGS-Alpha will be rebranded as BMO Capital Markets once the acquisition is complete.