Bank of Montreal (NYSE:BMO) Conference Transcript

Summary of Bank of Montreal Conference Call Company Overview - Company: Bank of Montreal (NYSE: BMO) - Date: January 06, 2026 Key Points ROE Target and Performance - Bank of Montreal aims to achieve a 15% Return on Equity (ROE) by the end of 2027, with a commitment to sustainable performance beyond that [6][8][59] - The bank increased its ROE by 150 basis points year-over-year, the fastest among peers, and achieved 26% EPS growth in the previous year [4][5] - The bank's operating leverage was 4.3% with an 18% growth in Pre-Provision Profitability (PPPT) in 2025 [5] U.S. Banking Segment - The objective is to exit 2027 with a 12% ROE in the U.S. banking segment, which has been restructured to optimize synergies between personal, commercial, and wealth management services [9][10] - The restructuring began in July 2025, and the bank expects to see full benefits from this optimization by the second quarter of 2026 [11] - Loan growth in the U.S. is anticipated to be in the mid-single digits starting in the second quarter of 2026, contingent on macroeconomic conditions [16] Credit and Impairments - The bank expects a flattish credit experience in 2026, with improvements anticipated in the U.S. but some deterioration in Canadian retail [13][14] - The bank aims to normalize impaired Provision for Credit Losses (PCL) to the mid-30s, but does not expect significant credit normalization to impact ROE significantly [14][34] Deposit Growth and Strategy - Deposit growth has been strong, particularly following the instability in early 2023, and is expected to align with loan growth moving forward [18] - The bank is focusing on improving the mix of deposits, targeting low-cost retail deposits and operational deposits in the commercial sector [19][21] Canadian Market Outlook - Loan growth in Canada is projected to be low single digits, influenced by economic uncertainty and client confidence [22][24] - The bank is optimistic about the Canadian economy's resilience and expects to see increased loan demand as clients regain confidence [24] Efficiency and Cost Control - The bank's efficiency ratio gap to peers has narrowed from 400 basis points to 160 basis points over the past five years [27] - A restructuring expense of approximately CAD 200 million is expected, with an annual run rate benefit of CAD 250 million [28] Capital Deployment and M&A Strategy - The bank generated 90 basis points of capital last year and maintains a 13.3% Common Equity Tier 1 (CET1) ratio, indicating strong capital generation capacity [35] - While the bank is open to M&A opportunities, it prioritizes organic growth and optimizing existing operations over pursuing acquisitions [39][40] Capital Markets Outlook - The capital markets business is performing well, with expectations to exceed previous targets of $625 million in PPPT per quarter [48] - The U.S. capital markets are seen as a significant growth area, with high market shares in investment banking and a focus on integrating services across business lines [51][52] Macro Economic Outlook - The bank anticipates 2.3%-2.4% GDP growth in the U.S. and 1.7% in Canada, with a positive outlook for operational improvements continuing into 2026 [58] - The bank remains optimistic about its ability to achieve its ROE target and sustain it beyond 2027 [59] Additional Insights - The bank's strong position in the mining sector and its global reach in capital markets are expected to provide significant benefits as the market improves [55] - The bank is cautious about the timing of capital flows despite positive policy shifts, indicating a measured approach to growth [56]