BMO(BMO) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record pre-provision pre-tax earnings of $3.5 billion, an increase of 8$2 billion, with earnings per share at $2.64, down from$2.94 last year, reflecting an 8% decrease [18][9] - The company achieved positive operating leverage of 5.2% for the quarter and 1.3% year-to-date [6][18] - The CET1 ratio remained strong at 13%, indicating a solid capital position [9][21] Business Line Data and Key Metrics Changes - Canadian Personal and Commercial Banking (P&C) reported record revenue of $2.9 billion, up 7$625 million, bolstered by strong client activity in global markets and corporate banking [12][24] Market Data and Key Metrics Changes - The company experienced robust customer deposit growth, with average balances up 9% year-over-year [19] - In the U.S. market, loan and deposit growth is strengthening in Canada, while softer in the U.S., with continued client acquisition [11][22] - The company is seeing improvements in its Treasury Payment Solution business, receiving recognition for its digital banking experience [11][22] Company Strategy and Development Direction - The company is focused on executing strategic priorities and investing for growth, leveraging its strong balance sheet and capital to build lasting shareholder value [25] - The management emphasized the importance of maintaining a strong risk culture and effectively managing credit performance through the credit cycle [17][26] - The company is committed to its EMpower 2.0 initiative, aiming to support underserved communities with a commitment of over $40 billion [16] Management's Comments on Operating Environment and Future Outlook - Management noted that while credit costs have increased, they expect provisions to normalize by 2025 as economic conditions improve [8][26] - The anticipated easing of central bank rates is expected to support economic growth, although the timing of benefits may vary [8][26] - Management expressed confidence in returning to long-term average credit performance levels as the economic environment stabilizes [26][66] Other Important Information - The company has seen a significant increase in impaired provisions, with$906 million reported for the quarter, largely driven by specific client segments affected by high interest rates and economic uncertainty [27][28] - The company is closely monitoring sectors such as transportation and commercial real estate, which have shown signs of stabilization [29] Q&A Session Summary Question: What surprised you regarding impaired PCLs and their future outlook? - Management indicated that while the current environment is complex, retail losses have remained within expected ranges, and they anticipate a return to long-term averages by the end of fiscal 2025 [34][36] Question: Why is there no share buyback despite a strong capital level? - Management stated that uncertainties in the environment prevent a full green light for buybacks, emphasizing the need to maintain capital for future opportunities [40][42] Question: How does the bank approach large credit exposures? - Management clarified that many large losses are shared with other banks in syndicated facilities, and they are continuously refining their risk management practices [45][46] Question: What went wrong relative to peers regarding PCLs? - Management emphasized that their credit underwriting policies remain robust, and the current issues are not systemic but rather episodic events affecting specific accounts [51][52] Question: What is the outlook for credit performance in the coming quarters? - Management expects elevated credit provisions for the next couple of quarters, with a return to normalized levels thereafter, aligning with historical averages [66]