A Bank of Montreal branch in Toronto's financial district. The bank's U.S. business – which makes up 40 per cent of BMO’s earnings – is the division dragging down its profitability.Aaron Vincent Elkaim/The Canadian Press
Bank of Montreal BMO-T is betting on a revival in its U.S. business to bolster its beleaguered profitability as geopolitical and trade turmoil threaten economic growth in the lender’s home and global markets.
BMO chief executive officer Darryl White said that while its U.S. division’s return on equity – a closely watched measure of profitability – has underperformed expectations, the bank is continuing to rejig the business to boost growth.
“Even with this strong performance, ROE has been below the peer average and below our medium-term objectives, and we have taken deliberate actions to address this gap,” Mr. White told investors at its investor day conference in Toronto.
“Now we’re really well positioned to gain share in the world’s largest economy.”
In 2024, BMO set a goal of improving its return on equity to 15 per cent by the end of 2027. The bank has taken big strides to get there. In the first quarter ended Jan. 31, the lender posted ROE of 12.4 per cent, up from 9.8 per cent when it set the goal at the end of 2024.
The U.S. business – which makes up 40 per cent of BMO’s earnings – is the division dragging down the bank’s profitability. The bank set a target to improve the unit’s ROE from 8 per cent to 12 per cent by 2028.
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BMO scooped up California-based Bank of the West for $17.1-billion in February, 2023. A few weeks later, the U.S. regional banking crisis tempered bank valuations.
In 2024, BMO grappled with credit concerns in its commercial banking unit, which makes up a significant portion of its overall business, in particular in the U.S. The bank set aside large provisions for credit losses – money reserved for loans that could default – which took a chunk out of quarterly earnings.
While BMO did not make any significant changes to the targets it set in 2024, the bank outlined its plans to dig deeper into the U.S. market.
Last year, BMO combined its U.S. operations under one unit and tapped Aron Levine, a former executive from Bank of America, to lead the business.
Mr. White said the previous model with broad North American oversight became less effective as the businesses expanded. The bank’s structure neglected key regional differences across banking markets and opportunities to sell across its retail, commercial, wealth and capital-markets divisions.
BMO is focusing on a handful of key states, including Washington, Oregon and Arizona.
Its biggest opportunity is in California, which boasts the largest economy of any state in the U.S. But the market is dominated by a few behemoth banks, and competition for deposits is fierce.
The bank expects to add 150 financial centres to its footprint on the West Coast by 2030, largely in California.
BMO’s regional deposits per financial centre trail its regional competitors in California, and the bank believes it can attract more customers by improving its digital platforms and hiring more wealth advisers, commercial relationship managers and bankers that serve more affluent clients.
The bank plans to increase its commercial banking team by 20 per cent, with 80 per cent of those hires located in California.
To reach its 15-per-cent ROE target across the bank, BMO is also tweaking its strategy in its Canadian banking, commercial, capital-markets and wealth-management business. The bank is focused on acquiring new clients, selling more products and services to existing customers, and streamlining its operations.
The bank has also invested in technology and exited loan portfolios that it considered less profitable.
But BMO could face potential barriers to revenue growth and risks of loan defaults amid an uncertain economic environment.
“I want people to realize we didn’t put in heroic assumptions in order to get to that 15 per cent,” Mr. White said.
“Ultimately, if that still isn’t enough and we’re in a really bad environment from a revenue perspective across the diversified businesses, well then does it become a timing issue? Maybe. But the destination is firm.”