Bank of Montreal Q4 2024 Earnings Call Transcript

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

Question: Gabriel Dechaine - National Bank Financial - Analyst : Can you give me a sense of the -- Darryl, you're talking about a more bullish outlook, I guess, and I know why you're saying that. In the US particularly, what are you seeing on the credit demand side of things, it's pretty early still for a turnaround, I imagine. But how do you expect loan growth to evolve over the course of the year?

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. And then for Piyush, the PCL outlook, you gave us a decent, I guess, sense of what to expect. But the messaging in Q3 was that we'd have high-50s or somewhere in the 60s and impaired over the next few quarters, and we got the highest -- mid- to high-60s this quarter. How do you expect the impaired loss ratio to trend over course of 2025? And is there a point at which you'll be releasing performing provisions? I know mechanically, you probably will. But if I look at your coverage ratio, I'm looking at the performing ACL to trailing 12-months impaired, it's still lower than where you normally would be.

Question: Doug Young - Desjardins Capital Markets - Analyst : Just on the capital side, you put an NCIB in place. Just want to get a sense of your intentions. And what -- I think, Darryl, in your comments, you mentioned you want to keep the CET1 ratio above a management target. Can you talk about what that CET1 ratio target is? And can you also maybe just infer like what is the CET1 ratio target embedded in getting your ROE back to 15%?

Question: Doug Young - Desjardins Capital Markets - Analyst : Okay. And then in the ROE waterfall to get back to 15%, you talked about capital optimization, I assume buybacks is a big part of that. What else is embedded in capital optimization? Is there further divestitures of businesses? Can you maybe break out what else would be embedded in there?

Question: Doug Young - Desjardins Capital Markets - Analyst : Just a follow-up in terms of the business side, the optimization of capital within the businesses, is there any one particular business that you would point to that's more heavy on that side?

Question: Matthew Lee - Canaccord Genuity - Analyst : So on the slide you added on the return to 15% ROE. A big chunk of that is category as U.S. segment improvement. And I know you touched a little bit about loan growth, but maybe what are some of the other items that are included in US sector of improvement? Because that piece of the chart seems like a big kind of a big chunk.

Question: John Aiken - Jefferies - Analyst : Darryl, BMO's strategically went to overweight on commercial. And with the experience of 2024 as well as what Piyush was talking about in terms of the watch list increasing, what are the expectations that you have for commercial growth through 2025? I guess where I'm going is, has the experience that you saw last year, is that tempering your appetite for commercial loans moving forward?

Question: Paul Holden - CIBC World Markets - Analyst : You gave some pretty good guidance on the capital markets PPPT. Just wondering if you can dig into the details a little bit more, I guess, particularly, we're hearing better pipeline investment banking, wondering specifically for BMO sort of in that mid-market PE space. What are you seeing there in terms of pipeline and indicated demand from clients, maybe that also funnels into commercial loan growth as well?

Question: Ebrahim Poonawala - BofA Securities - Analyst : I guess maybe just Piyush following up on credit. So heard your comments on PCL. Just address two more things if you can. When we think about the formations, whatever, $2.2 billion this quarter, is that feel like based on the work you've done, we are at peak formations like again, assuming there's nothing that goes wrong with the macro, should we see that $2.2 billion begin to come down starting next quarter? And also talk about how we should think about losses. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:30PM, BMO.TO - Q4 2024 Bank of Montreal Earnings Call When you look at the net write-offs jumped quite a bit this quarter, just trying to get a sense of the loss content of these loans that are actually getting into impaired loans.

Question: Ebrahim Poonawala - BofA Securities - Analyst : Got it. And I guess maybe one for you, Darryl. You talked about optimism on the US outlook. I think there's a lot of optimism a year even on bank M&A in the US. As you've been acquisitive over the years in the US, give us a sense of given where the franchise is today with Bank of the West, the synergies on the comp, like should we expect BMO to be a participant in deal activity in the US bank M&A world picks up over the next three to six months? Or is 2025 more about just focusing on synergies tied to Bank of the West and think about M&A after?

Question: Meny Grauman - Scotiabank - Analyst : This question is maybe for Darryl or Piyush. Now that you have more confidence around the peak in credit. I was hoping we could maybe revisit just your thoughts or lessons or takeaways from this credit episode? It definitely surprised the Street. And so just wondering what you draw from this in terms of in terms of lessons going forward?

Question: Meny Grauman - Scotiabank - Analyst : And maybe as a follow-up, just I think initially, when we saw this credit issue tick up, there was a fear that it might negatively impact growth expectations going forward in the US in particular. From your commentary, it doesn't sound like that, obviously, the environment in the US has changed for the better. So I just wanted to confirm that in terms of how these how this experience will or will not impact the growth outlook going forward for years?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Piyush, with respect to the learnings and everything you sort of laid out for us in terms of trying to help us assess sort of what went wrong. Can you maybe help size this for us? So for example, if it's the 2021 vintage, there were higher hold levels at that time, what's the impairment of that portfolio is the size of that portfolio and how should we think about the comfort level going forward? And I say this from a position of knowing that last year, you were comfortable going forward with credit quality. So can you maybe size us that vintage side, the hold size that went wrong and how that's working through the system today and why that gives you comfort?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. And the 2022 vintage, why is there no concern with that vintage loans?

Question: Lemar Persaud - Cormark Securities - Analyst : For Piyush. I think last quarter, you suggested it felt like I think Q4 and Q1 losses could be the peak. And then we move back towards the long-term historical average as we move through 2025. I think that number was the mid-30s. Correct me if I'm wrong on that one. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:30PM, BMO.TO - Q4 2024 Bank of Montreal Earnings Call I'm just trying to figure out how you're thinking about the trajectory in getting to that high-40s guidance. Does it feel like towards the end of 2025, moving back to that historical average as possible, exiting 2025?

Question: Lemar Persaud - Cormark Securities - Analyst : Okay. I appreciate that. And then just on these -- the questions involving the vintages of 2021, 2022 vintages, and so on. Was there a change in management or something under the hood that you guys made a determination that something needed to be changed in terms of these holds? Like was there any -- anything that any change like or epiphany that you guys had that said to you -- that made it clear that you had to change how you are managing the business post 2021?