Bank of Montreal (BMO) Barclays 22nd Annual Global Financial Services Conference 2024 summary

Credit quality and impaired PCL trends

• Impaired PCLs have risen above historical norms, with 15 loans accounting for half of impairments, mainly from 2021-2022 vintages tied to post-COVID liquidity and larger, enterprise-value-dependent loans.

• Elevated impaired PCLs are expected to persist for another six months, potentially peaking in Q4 or Q1, before normalizing to historical mid-30s basis points in the second half of next year.

• No significant industry or geographic concentration was found; most problematic loans were Shared National Credits, a minority of the portfolio.

• Underwriting standards are being reviewed and will be adjusted, but overall growth potential is expected to remain intact.

• Direct lending remains the core model, with shared national credits continuing as a minority of new business.

Return on equity (ROE) and efficiency targets

• Medium-term ROE target remains at 15%, with current headwinds from higher capital buffers, goodwill from acquisitions, and elevated credit costs.

• U.S. business recovery and $2 billion PPPT from the Bank of the West acquisition are delayed by a year, now targeted for end of 2026.

• Efficiency ratio target is 55% or below, supported by a strong commitment to positive operating leverage.

• Focus areas include optimizing capital allocation and achieving a cost base aligned with scale.

U.S. and Canadian business outlook

• U.S. loan and deposit growth has been muted, but deposit growth outperformed peers; election outcomes and rate cuts are expected to improve business activity in 2025.

• Commercial real estate exposure is limited and diversified, with office loans mainly in the U.S.; portfolio is performing as expected.

• Canadian mortgage portfolio remains strong, with impairments under two basis points and easing rate pressures; unsecured consumer lending delinquencies are rising due to higher unemployment.

• Mortgage growth in Canada has outpaced peers due to increased sales force and digital banking, but is expected to align with market growth going forward.