Bank of Montreal Q1 2025 Earnings Call Transcript

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

Question: Ebrahim Poonawala - Bank of America - Analyst : I guess maybe a question for you, Darryl. I mean I think there's a lot of focus, obviously, on tariffs and no one knows what's going to happen. I think you have a very unique perspective given just how the mix of your business. Just talk to us over the last few weeks, if you observed any difference between the US commercial client base versus the Canadian commercial client base and how the tariff headlines have weighed on those two groups? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 1:15PM, BMO.TO - Q1 2025 Bank of Montreal Earnings Call And what's your view around how this plays itself out, again, knowing that no one knows, but I mean a tariff scenario for the Canadian economy feels like it's a recession, so I mean I don't think there's a ton of debate there. But yes, I would love your perspective.

Question: Ebrahim Poonawala - Bank of America - Analyst : And just a quick follow-up. CET1 13.6%, good place to be. Like do we see the pace of buybacks pick up from here or do you expect -- are you okay with capital ratios potentially building beyond maybe closer to 14% over the coming months and quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 1:15PM, BMO.TO - Q1 2025 Bank of Montreal Earnings Call

Question: Matthew Lee - Canaccord Genuity Group Inc. - Analyst : I like to have one of your earlier slides in the deck is the US P&C ROE waterfall. I just want to touch on the improvements, particularly in the Bank of the West. It does sound like there's a little bit more juice to be squeezed out of that business. Can you maybe talk about what kind of revenue synergies you're looking for there? And maybe overall in the US business, what kind of operating performance improvements you're expecting that make up the 200 to 300 basis points of ROE improvement not related to credit and balance sheet there?

Question: Matthew Lee - Canaccord Genuity Group Inc. - Analyst : Have you captured any of the synergies in your view yet?

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : I'd like if you could clarify some of the statements you made around the performing ACL. It sounded that you didn't apply any specific assumptions for tariffs, but then you used some sort of expert judgment to set the performing ACL this quarter? Just I misheard, I'm sure. Can you maybe expand on that? And what sort of assumptions you're making, if any?

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : Okay. Great. That's helpful. And on the -- I don't know if you can handicap this. It's a moving target, of course. But let's say, the tariffs are what March 4 looks like the 25% is going to be slapped on us. You get a 10 basis point performing PCL this quarter. Would that double, triple? I wouldn't to be like pandemic level stuff because you have to factor in government support programs and all that. But just trying to get a sense of how much change we could see in that line item?

Question: Meny Grauman - Scotiabank - Analyst : A question for Darryl, and it's really about your 15% ROE target. And really, it's can it survive a tariff scenario? And if so, how is it really looking for levers that you have, it's particularly in the US to maybe offset some of the weakness in Canada?

Question: Meny Grauman - Scotiabank - Analyst : Fair enough. And just as a follow-up, I'm just wondering if there's anything about your US book that would make it either less susceptible or more susceptible to tariffs versus the broader US economy?

Question: Doug Young - Desjardins Capital Markets - Analyst : We can go back to that slide 9, the US ROE improvement. And I'm actually curious about the balance sheet optimization, more on the liability side. And can you remind us what CET1 ratio you're assuming within this whole evolution? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 1:15PM, BMO.TO - Q1 2025 Bank of Montreal Earnings Call

Question: Doug Young - Desjardins Capital Markets - Analyst : Okay. And then the balance sheet optimization?

Question: Doug Young - Desjardins Capital Markets - Analyst : And maybe just to finish off on this, like we -- so 12% is the medium-term target, and I get that, but what's the ultimate goal for that US business? I assume it's above 12%. Like where do you think you can take that?

Question: Mario Mendonca - TD Cowen - Analyst : If you could just sort of stick with that slide from 6% to 12%. It sounded like you were suggesting that capital will be recycled. So there's not going to be new capital being allocated to the US to grow earnings. So if we assume for a moment that capital allocated to the US is just steady, it's constant, let's call it, is the message then that you can double earnings -- more than double earnings in the US because it says 12-plus -- more than double earnings in the US over the next three to five years. Is that the message?

Question: Mario Mendonca - TD Cowen - Analyst : Okay. So slightly different question. Trading revenue arguably $400 million, $500 million higher this quarter than an average over the long term. I know that Q1s are special because they include a particular trade involving US banks Q4. What I'm interested in is, of that $400 million or $500 million benefit this quarter, could you assign a particular portion of that specifically to the Q1, the seasonality benefits? Like what I'm really trying to get at is how abruptly does trading return to normal or is there something more sustainable in there?

Question: Mario Mendonca - TD Cowen - Analyst : So I may just to put the final point in this and you're suggesting at $1.1 billion or so of trading revenue quarterly is BMO's new run rate for trading? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 1:15PM, BMO.TO - Q1 2025 Bank of Montreal Earnings Call

Question: Paul Holden - CIBC - Analyst : Two questions for you. First one is, there's a bit of a narrative or a question I've heard regarding BMO's loan composition that suggests despite your geographic advantage of a large proportion of the US maybe there's something in your C&I book that would suggest your loan portfolio might be more susceptible to higher credit losses under tariff scenario. So wondering if you can address that, if you can provide any data on how much or what percentage of your customers have sort of cross-border business, that would be helpful.

Question: Paul Holden - CIBC - Analyst : Got it. And then second question is just related to the improvement in net interest margins in the US P&C business, you highlighted a number of drivers there. Just wondering if you could give a sort of a forward outlook are those drivers sustainable, i.e., will we continue to see NIM expansion in the near term to the same factors?

Question: Paul Holden - CIBC - Analyst : The growth in the -- sorry, just the growth in the core deposits, checking accounts, demand deposits, et cetera, I mean, that will be additive for NIM, correct? Erminia Johannson - Bank of Montreal - Group Head, North American Personal and Business Banking and Co-Head, Personal and Commercial Banking Sorry, that will be -- I missed additive?

Question: Lemar Persaud - Cormark Securities - Analyst : Maybe for Alan on the Capital Markets business and just building along Mario's line of questioning. Obviously, exceptional capital markets results looks like it's going to be a key theme of Q1. Can you talk about the outlook heading into Q2? And then also, what would be helpful is if you could remind us of what a more normalized level of earnings or PPPT growth is appropriate for the capital markets business?

Question: Lemar Persaud - Cormark Securities - Analyst : And then one more near term, what above Q2, do you think some of the strength is kind of bleeding into Q2 based on what you're seeing today?

Question: Darko Mihelic - RBC Capital Markets - Analyst : And my last question was just asked and answered. So we're good to go. Thank you very much.