BMO Harris/Bank of West deal hits snag of $1.9 billion in potential fines

The news: Chicago-based BMO Harris Bank, which could potentially pay billions of dollars in fines for its alleged involvement in a Ponzi scheme, now also faces accusations of destroying incriminating evidence, per American Banker.

More on this: The US arm of Canadian-based BMO Financial is scheduled to go to court in October regarding its alleged involvement and facilitation of a Ponzi scheme between 1994 and 2008. This week, it lost a pretrial ruling in which a judge found the bank guilty of destroying evidence that it knew would be harmful to its defense.

• The Ponzi scheme occurred via an account at National City Bank, which was later acquired by Marshall & Ilsley Bank in 2001, and later by BMO Harris in 2011. The case states that BMO Harris’s predecessors failed to report the suspicious transactions, thus facilitating the scheme.
• The ruling said that in 2005, the bank intentionally deleted dozens of emails containing digital information pertaining to the case.
• The judge has urged the two sides to reach an agreement before the trial. But if the case goes to court, the jury will be allowed to use the information to draw conclusions about the bank.

BMO Harris has said it disagrees with the ruling and will continue to defend itself throughout litigation. If the bank loses the trial, it faces up to $1.9 billion in fines.

Bad timing: The timing of the ruling is unfortunate for BMO Harris, as it’s currently working toward approval of its acquisition of San Francisco-based Bank of the West. The proposed $16.3 billion deal would give BMO Harris significant penetration across the US west coast.

• Earlier this month, the bank also faced backlash at a public hearing over its lending practices in the midwest. Multiple fair housing rights groups claimed that BMO Harris failed to meet lending standards in underserved Black communities.

Canadian merger mess: Bad news keeps rolling in for Canadian banks that are trying to grow their technology and customer base and gain traction in the US market. The BMO Harris-Bank of the West deal, which has been in the works since December 2021, is not the only merger that could be in trouble.

• TD Bank is in the midst of acquiring Tennessee-based First Horizon Bank in a deal worth $13.4 billion. But US lawmakers are calling on regulators to halt the merger, accusing TD Bank of customer abuse.
• The allegations include opening unwanted and unauthorized accounts for new customers, and initiating fake fraud alerts to call customers and promote new products.
• The bank faces a class-action lawsuit in Canada for similar practices. TD Bank called both allegations unfounded.

Our take: Canadian banks’ planned acquisitions are already up against big hurdles in the US.

• US regulators are scrutinizing proposals more closely as part of an effort to update the process for evaluating mergers for the first time in 25 years.
• The Department of Justice and the Federal Trade Commission are keen to crack down on illegal mergers and enforce antitrust laws to promote competition.

But the Canadian banks are making it even harder on themselves as numerous scandals and accusations keep coming to light. Given these difficulties, they might be better off focusing instead on some of the technological changes set to take off in their home country which we’ve highlighted in our report, The Era of Uncertainty: Canadian Banks, like open banking and omnichannel personalization.