Jefferies Comments On Marshall & Ilsley Corp.'s Earnings Miss

Marshall & Ilsley's MI Operating EPS of -$0.32 fell short of consensus, largely driven by higher credit costs. Bank of Montreal's BMO acquisition of M&I involves a fixed exchange ratio. As such, M&I should continue to trade in tandem with BMO until the deal closes. Jefferies expects losses will remain elevated in the near-term, which will drive higher provision expense in '11. Additionally, loan balance declines in 4Q and larger portfolio run off in '11 cause the earning asset base to reset lower in outer-years. As such, '12 and '13 estimates go to $0.30 and $0.65, respectively, on lower net interest income. Jefferies price target for M&I is $7. On December 17, 2010, Bank of Montreal announced that it will acquire M&I in an all-stock deal with a fixed exchange ratio of 0.1257. As such, M&I shares will trade in tandem with BMO. Based on the range of BMO's share price over the past month, M&I shareholders can expect to receive $7.00-$7.50 per share when the deal closes. MI is trading higher at $7.18