Bank of Montreal at National Bank Financial Services Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : So, where do we start off here? I guess, the obvious place is the outlook and BMO along with other banks, at least Q4 of last year and maybe a little bit in Q1 as well. They're talking about, they look for loan growth and it was -- back half is looking more optimistic. Is that still the case today? Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking Yeah. So when we said the back half we looked at -- looked at on both sides of the border to start. In the US we've been facing pretty muted loan growth, and it's been on average, I think most of our peers have been anywhere between minus 1% and plus 1% basically, and we've been flattish the entire year. So the loan growth dynamics in the US have been very different than Canada. With the new government coming in and talking to customers, sentiment was positive, sentiment was pro-business, less regulation, less taxes, and so client sentiment would have made us believe that the latter half of the year in the US will show signs of momentum and an increasing loan growth. And I would say that today, when I talked to customers there is still optimism in the US as to where the economy will go. Having said that, the uncertainty that we're all talking about is creating churn around inflationary pressures, longer -- sorry, higher for longer rates with the Fed, which is causing that optimism to become a bit more of cautious optimism. And so, I would say Gabriel that in the latter half of the year, I still believe, that in the US we'll see positive loan growth. The magnitude of that positive I think is probably come down than what we had thought two months ago. In Canada, we are actually experiencing strong loan growth over the course of the year. For BMO we were up in commercial just over 7% year over year. Pipelines were strong, interest rates coming down, consumer confidence going up, inflationary pressures coming down. So all signs would have showed that, we would continue to see momentum in the high single digits as we move through the rest of '25. But of course over the last 45 days, 60 days, that has definitely changed. So when we look at customer sentiment in Canada on the commercial side, doesn't mean execution of deals is not happening, but the volume has definitely slowed down. Many customers are pausing to get some more certainty before they make commitments on M&A transactions or new investments. Working capital, everybody's holding very tight, liquidity is good for many of our clients. We're not seeing like during COVID we saw revolvers getting utilized and drawn down. That's not happening right now, so this is different than the COVID phenomenon for sure, but definitely the sentiment is very cautious in Canada right now. So I still think though that we will have positive REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2025 / 3:30PM, BMO.TO - Bank of Montreal at National Bank Financial Services Conference loan growth in the back half of the year in Canada. I do not think though that we're going to have loan growth in high single digits in Canada in the back half of the year until we get more certainty.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : I guess, the theme that's come up a lot more with a positive underlying tone, albeit a longer term. One, is the Canadian economy could be animal spirits could be revived because of what Trump's done and giving us a bit more motivation to build our economy with more resiliency, is that -- that's, I guess a far off, driver of loan growth for Canada and for BMO. Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking I don't know, but I think it's a fair one actually. I think this has been a wakeup call in some ways for some of the economy and some of our customers. And so I am hearing customers talk about, how do we get more? I don't want to call it protectionist, but how do we get more manufacturing, how do we get more productivity, which is a nice thing to talk about, right, because productivity in Canada is something that frankly has been lagging and so the wake up call I don't think is a bad thing. I think that we can get more productive in Canada. I think that it can lead to more loan growth and more opportunities in Canada. It's a shot in the arm, but it's not an overnight. This will take years, that we see impacts in terms of impacting our loan growth, before we would see it. But yes, I do see it impacting it over the long term.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : And then I guess we -- Q4, you're still confident that Q4 was the peak for -- Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking Loan losses.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : And bringing it back to Canada and bringing it back to the growth question, I mean, I just -- I don't know if you can give a perspective on line utilization rates, are they -- one of the previous speaker said they're normal, but I guess it's just new lines aren't being asked for. What's the -- is there an illustration there about how there's maybe some pent up credit demand just waiting for the right moment? Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking And we saw it. In our book, we've seen on the Canadian side utilization rates of our revolvers. Up slightly year over year, maybe just slightly under 1%. But they're still at fairly low levels, compared to pre-pandemic. And in the US, utilization levels have been flat to doubt for the most part, and some of that is the demand side of it. But some of it is, the companies have actually become much better at working capital management and the supply chain issues that folks faced has subsided and gone away. The need to hold large inventory levels has gone away. And so the ability to downsize your inventory, create more working capital, has created good liquidity on the balance sheets and basically has affected us on both sides where even deposits were being used to pay down the lines as higher cost of credit, more expensive, so we pay down the lines with our deposits, better working capital management, we pay down the lines, right? So we saw it on both ends and I don't see that changing in the near term.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : So these are the mid-market business operating deposits. As far as the retail component for deposits, do you have capabilities there? Or is that going to require a substantial investment because -- Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking No, we've got the capabilities, but it will require -- it require two things. It will require investment in terms of increasing our retail network presence, which we will do. Especially our new core markets on the West Coast, especially in California, and so we will look at putting more investment there and doubling down. But it's also about productivity within those branches in that we've -- got with the Bank of the West acquisition. Productivity meaning gearing ratios, revenue per FTE, sales per FTE in those branches. If we look at our statistics and data, we have significant value contribution that we can achieve if we can get those branches to operate the same level as the rest of our US branches that we have in the Midwest, Chicago Illinois and sorry, Illinois and Wisconsin. There's a gap in how those branches operate. So if we can just take the formula that we have and apply it into the branches that we now have in the new West markets, that increases our retail.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : And I'm -- I guess I'm segueing into the Bank of the West discussion because I did detect a bit more optimism on the revenue synergy side in some of the recent comments. I mean, there -- it's been a tumultuous few years, globally. What's -- where do things stand now with regards to delivering those revenue synergies and how are we going to actually see them because it's hard to evaluate them as an outsider you just look at the total US segment and you see a revenue line, but I can't really tell how much of that's coming from your business as usual versus, oh, they've been successful in delivering revenue synergies. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2025 / 3:30PM, BMO.TO - Bank of Montreal at National Bank Financial Services Conference Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking Yeah. So in terms of how is it coming along, you're right, it's been, since we had the acquisition, the couple of years have been tough, right? The muted loan environment, the deposit makeshift, the Silicon Valley Bank, and coming down and it all happened at the same time. So, timing could have been better, but, what we're -- what we've -- that was then, this is now. What I would say today is, technology conversion is done. Branding, if you, if you've been to California recently, BMO is significantly in the marketplace all over. So it's become a household name. With that we've been able to attract really good talent into the business as well. So we've changed leadership. We have, in fact, the new head of US Commercial Banking is based in LA. Tony came in from JP Morgan, and he had just started last week. And so, I feel comfortable that we've installed the talent base that we need for the growth. If I look at what indicators would tell me that the growth is coming, there's a few. One is new client acquisition. And so if I look at new client acquisition in the Western markets over the last quarter, it actually matches, if not exceeds, many of our core markets in the US now in terms of new client acquisition. If I also look at the businesses that we've put in, the investments that we put in. So we put ABL capabilities. So stuff that we do all day long in other markets now we have the ability in California, so ABL capabilities, equipment finance capabilities, we've put in a media finance team in the LA market, that we have in Toronto right now that does very well. So, these are all investments that we're making that create product and service capabilities that Bank of the West never had. BMO Capital Partners, which is, our merchant bank, gives us the ability to do equity investments and sub debt investments. We're launching that now into not just the Bank of the West markets but the entire US market. This is a significant differentiator for us in how we attract business. So when I look at all of this, I feel comfortable that so long as we have a constructive economy in the US that is positive momentum. We are in a good spot to accelerate the revenue synergies in Bank of the West.

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : You brought up, what BMO Capital Partners, that's the merchant bank. Yeah, the merchant bank, so that's the -- we call it the private equity business, I guess, you're lending, but you're also co-investing is that the business. Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking Yeah. So I wouldn't call it just private equity business, but there's a portion of that. So it's a $1.5 billion fund. It's all the bank's money. So there's no LPs. So it's all the bank's money. It's housed within the commercial bank. And we do a few things within it, so we do sub debt into companies that we bank. So it's an added layer of debt and we get paid for the return for that added layer of debt that helps the company grow or perhaps acquire or do M&A. The second part of it is that it gives the ability for us to actually invest into our portfolio companies. So if there's a company that we really like and they've got a good growth trajectory or they have an M&A opportunity, there's only so much senior debt they can get. And there's only so much equity the founder or that can put in, if we like the story we can invest alongside them on a minority basis and this has given us over the years a few tactical advantages. One, the client becomes very sticky. Number two, if things work out, you get some decent equity gains out of it at good returns, and number three,

Question: Gabriel Dechaine - National Bank Financial, Inc - Analyst : Got it. And then just to wrap private credit, how is that affecting, well, I guess, you're -- is there an opportunity there? I mean, I just think of it as displacing banks out of -- Nadim Hirji - Bank of Montreal - Group Head, BMO Commercial Bank, North America and Co-Head, Personal and Commercial Banking They're not going away. They're -- I think they're here to stay. I look at it as an opportunity. I mean, they've done, they have taken some share, but, we are looking at and some banks in the US have already started doing this in a meaningful way. But we are looking at creating originator distribute strategies where we partner with private credit we become the distribution channel and we're -- we have the ability to underwrite transactions, lay off risk to the private credit partner within the risk appetite and be able to still have a portion of the deal and be the face to the client, maintain the relationship and earn all the fee revenue. So I think there's opportunities to partner. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2025 / 3:30PM, BMO.TO - Bank of Montreal at National Bank Financial Services Conference