BMO Acquires $3 Billion in Oil and Gas Loans From Deutsche Bank

Bank of Montreal has a acquired a portfolio of about $3 billion in energy loans from Deutsche Bank AG.

“We are one of the leading energy investment banks in North America and we got there by continuously investing in our franchise to support our clients — including by growing our lending portfolio with this acquisition,” John Armstrong, deputy head of investment banking at BMO Capital Markets, said in an emailed statement.

The book comprises investment-grade and subprime revolving credit lines to oil and gas companies.

The deal follows Deutsche Bank’s announcement in May that it was closing its Houston office in a cost-cutting retreat from energy.

“This aligns with our strategy of scaling back in U.S. oil and gas investment banking,” a representative for the Frankfurt-based lender said in a statement.

The transaction also comes amid a continued rebound in oil prices that bodes well for bank lending to energy explorers, which contracted after prices crashed four years ago.

Bank of Montreal, Canada’s fourth largest bank by assets, has been striking deals to expand in the U.S. in recent years. It closed the purchase this month of KGS-Alpha Capital markets, a broker-dealer that specializes in mortgage-backed securities. In 2015, it acquired General Electric Co.’s transportation finance business, which had about $9 billion of assets.

The deal for Deutsche Bank’s energy loans underscores how the firm has been seeking to grow BMO Capital Markets — its investment banking unit — in the U.S., Armstrong said in the statement.

“We recently built out a 12-person power, utilities and infrastructure investment and corporate banking team in New York and expanded related product capabilities in the U.S.,” he said.

The Toronto-based bank is a top lender to U.S. energy companies, acting as bookrunner on $876 million in revolving credit lines issued by U.S. explorers this year, according to data compiled by Bloomberg. That makes it the No. 2 bookrunner on such deals so far this year, behind JPMorgan Chase & Co.

In oil and gas lending, revolving credit lines are typically secured by the value of an explorer’s reserves, or untapped oil and gas that can be extracted at current prices.