Bank of Montreal (BMO) RBC Capital Markets Canadian Bank CEO Conference 2025 summary

Credit loss outlook and recovery expectations

• Provisions for credit losses (PCLs) peaked in 2024, with expectations for a gradual decline through 2025, ending at a similar average as 2024 but with a different trajectory.

• Capital markets are expected to see a significant and rapid drop in PCLs, while Canadian retail unsecured credit continues to show some deterioration.

• Commercial portfolios in both Canada and the U.S. are trending positively, with lower provisioning outlooks, though variability is expected quarter to quarter.

• Performing loan provisions will continue to build prudently due to ongoing negative migration, but not at the elevated Q4 2024 levels; no releases are expected in 2025.

• Recoveries are not embedded in forecasts, as provisions are based on best estimates at the time; any recoveries realized will be incremental and may take several quarters or years.

Strategic priorities and ROE improvement plan

• Superior credit management remains a core strategic priority, with a long-term record of outperforming peers except for a few unique years.

• A 500 basis point ROE improvement is targeted, driven by U.S. segment normalization, operating leverage, credit normalization in Canada, and capital optimization.

• Revenue synergies from the Bank of the West acquisition are expected to deliver $450–$550 million, with customer growth and brand awareness improving in California.

• The U.S. bank is targeted to reach 12–13% ROE, which would enable the total bank to achieve 15% ROE, with further plans to reach 15% in the U.S. over time.

• Capital optimization includes both share repurchases and reallocating capital to higher-return areas, leveraging data analytics for more granular and timely decisions.

Timing, risks, and market environment

• The ROE improvement plan is expected to be realized over three to five years, with a goal to achieve it on the earlier end if market conditions remain stable.

• Major risks include market dislocation or prolonged periods of no loan growth, which could delay progress.

• The improvement trajectory will not be linear, with potential for lumpiness, especially as PCLs normalize.

• U.S. regulatory changes are not expected to materially alter the bank’s approach, as high compliance standards are maintained regardless of external shifts.

• Organic growth is prioritized over M&A in the U.S., with significant investments in technology, compliance, and talent to support this strategy.