Canada’s banking market remains as competitive as ever, but one bank stands out for the strong performance of its underlying businesses as well as for completing the standout strategic move of the period. Bank of Montreal (BMO) is Canada’s Best Bank.
Looking at the 12 months to the end of April 2023, BMO’s adjusted revenues rose 13% as the bank included for the first time the newly acquired Bank of the West, which closed in February. Adjusted pre-provision profits were up 2%.
Revenues of C$33.7 billion ($25.5 million) in the bank’s fiscal year 2022 were a record for the firm. Even stripping out a one-off gain related to the BoW purchase, the result was only slightly behind 2021’s high.
BMO’s common equity tier-1 ratio fell on completion of the acquisition, but it is still more than one percentage point over the bank’s 11% minimum. On the asset-quality front, while there have been concerns over commercial real estate (CRE) exposure in both the US and Canadian banking sectors, BMO’s well-diversified CRE exposure, at about 10% of its loan book, looks conservative. Its office exposure is only 1% of total loans.
Residential mortgages – an area of perennial worry in Canada given the regular forecasts of a housing crisis – account for about 30% of BMO’s loans and about 43% are variable rate. Only about 12% of the portfolio renews in the next 12 months.
BMO’s US franchise had already been inching upwards in importance over the years, increasing to 36% of total revenues in the fiscal year 2022 compared with about 20% around the time of the global financial crisis. That rose to 43% in the latest quarter, which included California-based BoW.
To have completed the deal at a time when regulatory scrutiny does not make such processes straightforward, was impressive in itself. And it is expected to play a significant part in building up the US franchise in the years to come. The bank expects its new acquisition to contribute more than $2 billion in annual pre-provision pre-tax earnings by the end of its fiscal year 2025, about 19% of its US segment earnings in 2022.
But a lot has happened since BMO embarked on the acquisition of Bank of the West, not least the changing rate environment and the turmoil in the US regional banking sector in March 2023. On the bank’s fiscal second quarter earnings call in May, BMO chief executive Darryl White was asked whether the US market was as attractive as it was back in December 2021, when the acquisition had first been announced.
“My perspective is unambiguously yes,” he said. “We play the long game, as you know. The US is the largest and most profitable banking market on the planet… We’re in three of the five largest markets in the US and 50 states digitally, and that is differentiated.”
In any case, BMO’s successes go well beyond one deal. Its core personal and commercial banking division, which accounts for about 60% of revenues, saw strong growth in 2022, with revenues up 13% from the previous year. The bank is continuing to expand its digital capacity, with more than 90% of transactions now conducted through self-service. That is a priority because it frees up staff to provide more value-added advisory work.
We’re in three of the five largest markets in the US and 50 states digitally, and that is differentiated
Darryl White
The bank tweaked its BMO NewStart initiative by allowing new entrants to Canada to access fee-free banking, including Ukrainians fleeing the conflict in their home country. And it launched a Black Entrepreneurs programme that included C$100 million of loans to help startups.
It also launched a new global money transfer platform giving customers a digital method of sending money with the ability to set up recurring transactions, the first time that has been done by a Canadian bank. And more enhancements came in the bank’s platform for treasury and payment services to make onboarding more seamless and digitizing the billing procedure.
BMO’s wealth management arm saw more features added to its InvestorLine product, allowing clients to more easily see their whole portfolio, as well as margin balances. The bank is also expanding its wealth footprint further into the US market.
And its investment bank, BMO Capital Markets, continued to be one of the leading franchises, ranking second for equity capital markets deals in the awards period and rising from third to second in debt capital markets, excluding self-led deals.
Global markets revenues of C$3.7 billion in the full year 2022 were a record for the firm and investment banking revenues of C$2.4 billion were only a shade below 2021’s record.
