http://www.financialpost.com/trading_desk/financials/story.html?id=1171778
Summary:
Canada’s fourth largest bank, BMO Bank of Montréal, just recently purchased the world’s largest insurance company – AIG’s Canadian Life Insurance Unit. It acquired the company with an all-cash transaction of $375 million CAD. AIG was required to pay back the loans from the U.S federal government with an amount of $60 billion US dollars. BMO saw the purchase as a source to expand, strengthen the business’ financial plans, and increase client relationships. Also, the business deal will certainly benefit BMO’s revenue by opening the doors to a variety of customers and enhancing the bank’s earnings. Without a doubt, the BMO has strategically purchased AIG Life of Canada at a perfect timing with a fairly low cost.
Connection:
Chapter 4 focuses highly on Revenue Recognition with the GAAP code and criteria. Businesses strive to keep their company from bankruptcy by continually earning revenue throughout their accounting cycle and recording it into the financial statements. Only the businesses with new and fresh strategies are able to successfully continue their business without being afraid of closing down. Similar to BMO’s earnings with additional accounts and customers, they must recognize the revenue they encounter by verifying it onto the financial statements. Also, the purchase of AIG Life of Canada clarifies the Return on Investment Ratio (ROI) which declares the Performance Measurement of the business.
Reflection:
I think BMO took a mountain load off AIG’s shoulders as they acquired the company with an all-cash transaction. It is fairly beneficial to BMO’s new line of business for financial plans and increasing customers. As a matter of fact, I think BMO made a smart move when they decided to buy AIG Life of Canada. This way, the bank will be able to strengthen their financial position and achieve access to many supplementary customers. Also, AIG couldn’t maintain their expenses at low costs with high revenue which indicates their unsuccessful business strategies. It was impossible for AIG to survive without the help of BMO’s cash flowing into the company.
Article Summarized by
- Jillian Mak
1 comment:
I too believe that BMO has taken a “mountain load off AIG’s shoulders.” AIG can now pay off their debt to the U.S. federal government. The problem is that this transaction may cause problems for BMO. BMO may have seen it as a way to expand their cliental list and increase their earnings but they are taking a gamble in their investments. The customers who were once AIG members may decide to leave and take their accounts to another bank institute. This would thus not help BMO since it would be a loss for them. In all, I think this would not be a problem thought since BMO is the forth largest bank in Canada.
- J. Low
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