BMO(BMO) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted net income of $2 billion and adjusted EPS of$ 2 59, with a $0 04 increase in dividend, up 5% YoY [7] - Strong pre-provision pre-tax earnings (PPPT) growth of 7% YoY, driven by Canadian P&C, capital markets, and wealth management [7] - CET1 ratio improved to 13 1%, up 30 basis points QoQ, driven by internal capital generation and lower RWA [22] - Total provision for credit losses (PCL) was$ 705 million or 44 basis points, up from 38 basis points last quarter [28] Business Line Performance Canadian P&C - Record revenue of $2 8 billion, up 13% YoY, driven by higher net interest income and non-interest revenue [23] - Loans grew 5% YoY, with strong growth in mortgages and commercial loans, while deposits increased 11% [23] - Net income up 7% YoY, driven by strong PPPT performance, partially offset by higher PCLs [23] US P&C - Net income down 25% YoY, with lower revenue and higher PCLs, partially offset by lower expenses [24] - Revenue declined 7% YoY, driven by lower net interest income due to a 23 basis point reduction in margins [24] - Loans up 1% YoY, excluding the impact of the RV loan portfolio sale, while deposits remained stable [25] Wealth Management - Net income up 33% YoY, driven by strong operating performance and client asset growth [25] - Revenue increased 4% YoY, reflecting stronger markets and client asset growth, offsetting lower net interest income [25] Capital Markets - Net income up 23% YoY, with strong PPPT performance of$ 642 million, consistent with guidance [26] - Revenue in Global Markets up 8% YoY, driven by improved market conditions and higher interest rate trading [26] Market Performance - US Segment contributed 45% to the bank's earnings, with strong deposit growth and stable commercial lending [11][12] - Canadian P&C saw strong momentum from newcomers to Canada, up 35% YoY, driven by BMO's New Start program [7] - US P&C achieved record new business generation in retail and commercial banking, with strong digital adoption [13] Strategy and Industry Competition - Focus on delivering positive operating leverage, with a strong 3% achieved this quarter [8] - Digital-first strategy driving growth, with 2 million AI-enabled conversations and 80 million BMO Insights delivered [15] - Competitive advantages in the US market, with a presence in 14 of the top 25 MSAs and leading market share in key sectors [11][12] Management Commentary on Operating Environment and Outlook - Elevated credit risk due to prolonged higher interest rates and a slowing economy, with delayed rate cuts expected in Canada and the US [9] - Expectation of relative full bank margin stability for the remainder of the year, despite competitive deposit pricing [20] - Continued investment in growth opportunities, with a focus on capturing profitable market share in Canada and the US [21] Other Important Information - Recognized as one of the world's most ethical companies by the Ethisphere Institute for the seventh consecutive year [16] - Ranked among Fast Company's list of the world's most innovative companies for 2024 [15] Q&A Session Summary Question: Impaired PCLs and Credit Risk - Impaired PCLs expected to remain around 41 basis points for the next few quarters, driven by higher unemployment and delayed rate cuts [36][37] - Credit risk is well-managed, with a diversified portfolio and strong risk management capabilities [33] Question: US Deposit Growth Strategy - US deposit growth driven by a combination of branch productivity, digital capabilities, and attracting mass-affluent customers [67][68] - Focus on simplifying Treasury business and targeting emerging mid-market clients with strong ROE [71] Question: Performing Loan Book and Stage 2 Classifications - Stage 2 classifications increased to 16%, reflecting credit migration due to higher rates and inflation [73][74] - Performing provisions expected to remain stable, with no significant releases anticipated in the near term [77] Question: US P&C NIM Outlook - US P&C NIM expected to stabilize, with modest compression remaining but less severe than in Q2 [80] Question: Commercial Real Estate and Maturities - Active management of commercial real estate loans, with refinancing and modifications to mitigate risks [97][98] - Expectation of partial recoveries on impaired loans in the commercial real estate sector [98] Question: US Mid-Market Private Equity Lending - No significant noise from private equity lending in impairments or revenue lines, with muted activity due to the election cycle [113][114]