Q3 2024 Bank of Montreal Earnings Call

August 27, 2024

please continue to stand by thecon begin moment

Lily. Once again, please continue to stand by. We thank you for your patience.

This conference has been recorded, this conference has been recorded, this conference has been recorded.

All participants, please stand by your conferences ready to begin. Good morning and welcome to Beamo Financial Group's Q2-2024 earnings release and conference call for August 27, 2024. Your host for today is Christine Viau. Please go ahead.

Speaker Change: Thank you and good morning. We will begin the call with remarks from Gerald White, Bimo C.O. followed by Tyfun Tuzun, our Chief Financial Officer and Piyush Agrawal, our Chief Risk Officer.

Speaker Change: Also, present to take questions, or Ernie Johansson, head of BMO North American Personal Business Banking, Nadine Herge, head of BMO Commercial Banking, Alan Tannenbaum, head of BMO Capital Market, Dillon to Kamanga, head of BMO Welp Management, and Daryl Hockett BMO USCO.

Speaker Change: As our call will entity 15 this morning, please limit yourselves to one question during the Q&A and re-q to give everyone a chance to participate.

Speaker Change: As noted on slide two, forward-looking statements may be made during this call, which involve assumptions that have inherent rest and uncertainties. Actual results could differ materially from these statements.

Speaker Change: I would also remind listeners that the bank uses non-gap financial measures to arrive at a adjusted result, management measures performance on a reported and adjusted basis, and considers both to be useful in assessing underlying business performance.

Speaker Change: will be referring to adjusted results in their remarks unless otherwise noted. I will now turn the call over to you. Thank you, Christina, and good morning everyone.

Speaker Change: This quarter, we delivered record pre-provision pre-tax earnings of 3.5 billion, up 8% over last year, driven by continued revenue growth and Canadian personal and commercial banking, stronger client activity in our market sensitive businesses.

Speaker Change: and the full realization of our cost-energy and efficiency programs.

Speaker Change: We met our commitment to positive operating leverage this quarter at 5.2% and year-to-date at 1.3% and we remain on track to deliver positive operating leverage for the full year.

Speaker Change: Operating momentum across our diversified businesses has been steadily improving since the start of the year. And, at the same time, the cyclical increase in credit costs has resulted in loan loss provisions above our historical range, which has not met our expectations.

Bimo: Bimo has a long history of superior credit management, and that has not changed.

Bimo: Over many cycles, we've consistently outperformed peers, and our portfolios remain strong, diversified, and well-managed.

Bimo: We've investigated the circumstances that led to recent impairments and the conclusion is for some customers, the combination of prolonged high interest rates, economic uncertainty, and changing consumer preferences had an acute impact.

Bimo: This is presented in a relatively limited list of borrowers. For instance, only 15 accounts comprise almost 50% of year-to-date impaired provisions in our wholesale portfolio.

Bimo: During a contracting credit cycle, the timing of wholesale losses can be difficult to predict. Well, we expect provisions will remain elevated in the near term.

Bimo: As the benefit of central bank easing will take time to transmit, we also expect that we will return to normalized levels in the range of our long-term average during 2025.

Bimo: Piyush will discuss this further in his remarks.

Piyush: The Bank of Canada is anticipated to continue cutting rates in increments and the fed to begin reducing rates in September.

Speaker Change: While GDP growth has strengthened from earlier expectations, we continue to monitor evolving geopolitical events and the pace of unemployment.

Piyush: We're dynamically managing our businesses to support customers and deliver returns across a range of conditions and outcomes.

Speaker Change: Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion and earnings per share were $2.64.

Speaker Change: We've had good balance sheet growth, including robust customer deposit growth across our franchise, supported by a strong capital position with a CET-1 ratio of 13%.

Speaker Change: Canadian PNC delivered another quarter of record revenue up 7% year over year and PPPT up 12%.

Speaker Change: Our PNBB business is on pace for our strongest year ever in net customer acquisition with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians.

Speaker Change: It's been just over a year since the acquisition of air miles, Canada's most recognized loyalty program.

Speaker Change: In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Airmiles credit cards.

Operator: On participants, please continue to stand by.

Operator: The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience. This conference is being recorded. All participants, please stand by. Your conference is ready to begin.

Operator: The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience. This conference is being recorded. All participants, please stand by.

Speaker Change: The AirMiles brand relaunched this summer is already seeing early signs of success with double digit growth in enrollments, app downloads, and reward redemption.

Operator: Your conference is ready to begin.

Speaker Change: With access to over two thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement.

Christine Viau: Good morning and welcome to BMO Financial Group's Q22024 earnings release and conference call for August 27, 2024.

Speaker Change: In USP and C, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9% and a 300 basis point improvement in our efficiency ratio over last year.

Christine Viau: You host for today is Christine Viau, please go ahead. Thank you and good morning. We will begin the call with remarks from Gerald White, BMO CEO, followed by Tayfun Tuzun, our Chief Financial Officer, and Piyush Agrawal, our Chief Risk Officer. Also present to take questions are Ernie Johannson, Head of BMO North American Personal and Business Banking, Nadim Hirji, Head of BMO Commercial Banking, Alan Tannenbaum, Head of BMO Capital Market, Zelens Kamenga, Head of BMO Wealth Management, and Gerald Hackett, BMO US CEO.

Speaker Change: In commercial banking, loan and deposit growth is strengthening in Canada, and while softer in the U.S., we continue to acquire new clients and increase deposit penetration.

Speaker Change: We're growing active users in our leading treasury payment solution business.

Speaker Change: and we received the Red Daut Award for Design Concept for redesigning the digital banking experience for small and medium enterprises.

Christine Viau: As our call will end at 8.15 this morning, please limit yourselves to one question during the Q&A and ReQ to give everyone a chance to participate. As noted on slide two, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-gap financial measures to arrive at adjusted results, management measures, performance on a reported and adjusted basis, and considers both to be useful in assessing underlying business performance. Gerald and Tayfun will be referring to adjusted results in their remarks unless otherwise noted.

Speaker Change: Bimo Welch Management at a strong quarter, with wealth and asset management net income up 44%.

Speaker Change: year over year driven by good growth and client assets with strong net sales in our leading ETF business and net positive mutual fund flows.

Speaker Change: We're seeing results from our investments in asset management as nearly all global mandates managed by our global equities team performed in the top desile, including the BMO Global Equity Fund, which received a five-star morning star rating.

Gerald White: I will now turn the call over to Joe. Thank you, Christina and good morning, everyone. This quarter we delivered record pre-provision pre-tax earnings of 3.5 billion, up 8% over last year, driven by continued revenue growth and Canadian personal and commercial banking, stronger client activity in our market sensitive businesses, and the full realization of our cost energy and efficiency programs. We met our commitment to positive operating leverage this quarter at 5.2% and year-to-date at 1.3% and we remain on track to deliver positive operating leverage for the full year.

Speaker Change: Bimo Capital Markets had PPPT of 625 million within the range we've got it to bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking.

Speaker Change: We're growing our capabilities in leadership and target areas in the U.S. ranking number one in U.S. agency CMO issuance near-to-date.

Speaker Change: Turning to our overall U.S. segment, we're building on over 200 years of experience in our second home market.

Speaker Change: This fall will be celebrating 40 years since our bold expansion of Harris Bank in Chicago, 15 years since the acquisition of M&I and one year since the conversion of the Bank of the West.

Gerald White: Operating momentum across our diversified businesses has been steadily improving since the start of the year. And at the same time, the cyclical increase in credit costs has resulted in loan loss provisions above our historical range, which has not met our expectations. BMO has a long history of superior credit management and that has not changed. Over many cycles, we've consistently outperformed peers and our portfolios remain strong, diversified and well-managed. We've investigated the circumstances that led to recent impairments and the conclusion is for some customers, the combination of prolonged high interest rates, economic uncertainty and changing consumer preferences, had an acute impact.

Speaker Change: Over this time, we've consistently grown through many economic cycles, creating value as a key differentiator for BMO and our customers.

Speaker Change: from a regional bank with $8 billion of assets in 1984, we're now a top-ten bank with national reach strong capital and the size and skill to compete across retail and commercial banking, wealth management, and capital markets.

Speaker Change: We continue to progress on our revenue synergy targets, including strong core personal customer growth with over 35% coming from our new West markets, evidence of our growing brand recognition, strong digital checking account growth, and improving branch productivity.

Gerald White: This is presented in a relatively limited list of borrowers. For instance, only 15 accounts comprise almost 50% of year-to-date impaired provisions in our wholesale portfolio. During a contracting credit cycle, the timing of wholesale losses can be difficult to predict. Well, we expect provisions will remain elevated in the near term. As the benefit of central bank easing will take time to transmit, we also expect that we will return to normalize levels in the range of our long-term average during 2025.

Speaker Change: We're augmenting talent and capabilities, including for example dedicated teams in wine and beverage M&A and media and entertainment finance in Los Angeles.

Speaker Change: Transactions between commercial banking and capital markets in areas like FX hedging and treasury payments are increasing. And this quarter we closed the biggest referral of the year between commercial and wealth management.

Gerald White: Piyush will discuss this further in his remarks. The Bank of Canada is anticipated to continue cutting rates in increments and the Fed to begin reducing rates in September. While GDP growth has strengthened from earlier expectations, we continue to monitor evolving geopolitical events and the pace of unemployment.

Speaker Change: We've delivered.

Speaker Change: Consistent pre-provision pre-tax earnings of a billion dollars or more in the U.S. for the 6th consecutive quarter, with modest, balanced growth and protecting margins at a rate better than peers.

Gerald White: As the benefit of central bank easing will take time to transmit, we also expect that we will return to normalize levels in the range of our long-term average during 2025.

Speaker Change: While we surpassed our synergy goals, as we've discussed, the currently muted conditions for U.S. banking industry growth have impacted the timing of delivery on the revenue synergies from the bank of the West.

Gerald White: We're dynamically managing our businesses to support customers and deliver returns across a range of conditions and outcomes. Turning to our results and operating group performance for the quarter, adjusted net income for the third quarter was $2 billion and earnings per share were $2.64. We've had good balance sheet growth including robust customer deposit growth across our franchise, supported by a strong capital position with a CET-1 ratio of 13%. Canadian PNC delivered another quarter of record revenue of 7% year over year and PPPT up 12%.

Speaker Change: However, the overall environment is now showing signs of inflection and the investments we've made to build the business for success, position us to grow profitable market share and strengthen return on equity.

Speaker Change: At the same time, we're making a difference in the communities we serve through in power 2.0.

Speaker Change: Our five-year commitment to breakdown barriers faced by underserved communities, businesses and families in the United States having already delivered $10 billion of our more than $40 billion commitment.

Gerald White: Our PNBB business is on pace for our strongest year ever in net customer acquisition with net account growth nearly double industry benchmark and strong customer primacy, a reflection of our award-winning digital and product capabilities and our strong traction with new Canadians. It's been just over a year since the acquisition of Air Miles Canada's most recognized loyalty program. In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Air Miles credit cards.

Speaker Change: In summary,

Speaker Change: Our franchise is strong, as evidenced by SaaS growing deposit customer base.

Speaker Change: Leading customer acquisition and deepening client relationships.

Speaker Change: We've delivered on our commitment to positive operating leverage. I'm confident that our risk culture is intact, with actions in place to effectively manage risk and improve our credit performance through next year.

Gerald White: The Air Miles brand relaunched this summer is already seeing early signs of success with double-digit growth in enrollments, app downloads and reward redemptions. With access to over two-thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement. In US PNC, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9% and a 300 basis point improvement in our efficiency ratio over last year.

Gerald White: It's been just over a year since the acquisition of Air Miles Canada's most recognized loyalty program. In that time, we've executed against key strategies and investments to revitalize the program, including a new mobile app and expanded ways to earn miles, including offers directly linked to BMO Air Miles credit cards. The Air Miles brand relaunched this summer is already seeing early signs of success with double-digit growth in enrollments, app downloads and reward redemptions.

Speaker Change: Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles. I'll now turn it over to Tayfun.

Tayfun: Thank you, Darrell. Good morning and thank you for joining us. My comments will start on Slide 10.

Tayfun: Third quarter reported EPS was $2.48 and net income was $1.9 billion.

Gerald White: With access to over two-thirds of all Canadian households, we're creating differentiation in the market and a foundation to drive customer acquisition and engagement. In US PNC, we're seeing improving performance with revenue up over last quarter, positive operating leverage of 4.9% and a 300 basis point improvement in our efficiency ratio over last year. In commercial banking, loan and deposit growth is strengthening in Canada and while softer in the US, we continue to acquire new clients and increase deposit penetration. We're growing active users in our leading treasury payment solution business and we received the red dot award for design concept for redesigning the digital banking experience.

Tayfun: The adjusting items are shown on slide 39 and the remainder of my comments will focus on adjusted results.

Tayfun: The adjusted EPS was $2.64 down from $2.94 last year and net income was $2.8 per cent as strong PPPT growth of 8% was offset by higher PCL

Gerald White: In commercial banking, loan and deposit growth is strengthening in Canada and while softer in the US, we continue to acquire new clients and increase deposit penetration. We're growing active users in our leading treasury payment solution business and we received the red dot award for design concept for redesigning the digital banking experience. For small and medium enterprises. BMO wealth management had a strong quarter with wealth and asset management net income up 44% year over year driven by good growth and client assets with strong net sales in our leading ETF business and net positive mutual fund flows.

Tayfun: Record PPPT of $3.5 billion was driven by strong operating performance across our businesses.

Tayfun: with positive operating leverage of 5.2%.

Tayfun: Excluding lower insurance revenue, which was inflated last year due to market impacts related to the IFRS-17 transition. Revenue was up 2% and expenses were down 1% excluding severance in the prior year.

Gerald White: For small and medium enterprises. BMO wealth management had a strong quarter with wealth and asset management net income up 44% year over year driven by good growth and client assets with strong net sales in our leading ETF business and net positive mutual fund flows. We're seeing results from our investments in asset management as nearly all global mandates managed by our global equities team performed in the top desil, including the BMO Global Equity Fund, which received a five-star morning-star rating.

Tayfun: PCL increased $414 million, which Piyush will speak to in his remarks.

Piyush: Moving to slide 11, average loans grew 6% year over year, excluding the impact of the RV loan portfolio sale, and the wind down of the indirect auto-book driven by good growth in residential mortgages and business and government loans.

Gerald White: We're seeing results from our investments in asset management as nearly all global mandates managed by our global equities team performed in the top desil, including the BMO Global Equity Fund, which received a five-star morning-star rating. BMO Capital Markets had PPPT of 625 million within the range we've guided to, bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking. We're growing our capabilities in leadership and target areas in the US, ranking number one in US agency CMO issuance near-to-date.

Speaker Change: Strong growth and customer deposits that deposits continues with average balances up 9% from last year driven by higher deposits in our US and Canadian personal and commercial businesses.

Gerald White: BMO Capital Markets had PPPT of 625 million within the range we've guided to, bolstered by strong client activity and revenue performance in global markets, M&A, and corporate banking. We're growing our capabilities in leadership and target areas in the US, ranking number one in US agency CMO issuance near-to-date.

Speaker Change: Turning to slide 12.

Speaker Change: On an ex-training basis, net interest income was unchanged from the prior year, as balanced growth was offset by lower margins.

Gerald White: Turning to our overall US segment, we're building on over 200 years of experience in our second home market. This fall, we'll be celebrating 40 years since our bold expansion of Harris Bank in Chicago, 15 years since the acquisition of M&I, and one year since the conversion of the Bank of the West. Over this time, we've consistently grown through many economic cycles, creating value as a key differentiator for BMO and our customers.

Speaker Change: and up 5% sequentially, including the impact of 2 additional days in the quarter.

Speaker Change: Compared with last quarter, NIM was up one basis point.

Speaker Change: In both Canadian and U.S. PNC, Nimd decrease three bases points sequentially.

Speaker Change: Lower the positive margins continue to pressure nim this quarter, but to a lesser extent, as pricing and the shift to term deposits is stabilizing.

Gerald White: From a regional bank with $8 billion of assets in 1984, we're now a top 10 bank with national reach, strong capital, and the size and scale to compete across retail and commercial banking, wealth management, and capital markets. We continue to progress on our revenue synergy targets, including strong core personal customer growth with over 35% coming from our new West markets, evidence of our growing brand recognition, strong digital checking account growth, and improving branch productivity.

Speaker Change: At the old bank level, we maintain our expectation of relative margins stability for the remainder of the year.

Speaker Change: Canadian PNCNM is expected to tighten mainly due to higher loan growth relative to the positive growth.

Speaker Change: While the U.S.P.N.C is expected to be modestly higher.

Speaker Change: Turning to slide 13.

Speaker Change: We maintain a relatively neutral position to change as an interest rate, consistent with our strategy, and we believe that we are well positioned for the declining rate environments.

Gerald White: We're augmenting talent and capabilities, including, for example, dedicated teams in wine and beverage M&A and media and entertainment finance in Los Angeles. Transactions between commercial banking and capital markets in areas like FX hedging and treasury payments are increasing. And this quarter, we closed the biggest referral of the year between commercial and wealth management. We've delivered consistent pre-provision pre-tax earnings of a billion dollars or more in the US for the sixth consecutive quarter, with modest balance growth and protecting margins at a rate better than peers.

Speaker Change: Moving to slide 14.

Speaker Change: Expenses continue to be well-managed and declined 5% driven by the full realization of both the bank of the West cost synergies.

Speaker Change: and broader operational efficiencies, as well as the impact of higher severance and legal provisions in the prior year, which more than offset underlying growth and operating expenses and business investments.

Speaker Change: We delivered on our commitment to positive operating leverage again this quarter and expect the same next quarter despite a typical fourth quarter sequential optic in expenses.

Speaker Change: Turning to slide 15, our capital position remains strong with a C-T1 ratio of 13 processed.

Gerald White: While we surpassed our synergy goals, as we've discussed, the currently muted conditions for US banking industry growth have impacted the timing of delivery on the revenue synergies from the Bank of the West. However, the overall environment is now showing signs of inflection and the investments we've made to build the business for success, position us to grow profitable market share, and strengthen return on equity. At the same time, we're making a difference in the communities we serve through in Power 2.0, our five year commitment to break down barriers faced by underserved communities, businesses, and families in the United States, having already delivered 10 billion dollars of our more.

Speaker Change: Internal Capital Generation was offset by higher source currency RWA, due to asset growth and to a lesser extent the impact of credit migration, as well as an increase in market risk RWA from the low levels in the second quarter.

Speaker Change: Our capital outlook remains strong and is still likely to remain above our 12.5% management targets.

Gerald White: At the same time, we're making a difference in the communities we serve through in Power 2.0, our five year commitment to break down barriers faced by underserved communities, businesses, and families in the United States, having already delivered 10 billion dollars of our more. In summary, our franchise is strong as evidenced by fast growing deposit customer base, leading customer acquisition, and deepening client relationships. We've delivered on our commitment to positive operating leverage.

Speaker Change: Moving to the operating groups and starting on slide 16.

Speaker Change: Canadian PNC net income was up 3% year over year, driven by strong KPPT performance up 12% partially offset by higher PCLs.

Gerald White: In summary, our franchise is strong as evidenced by fast growing deposit customer base, leading customer acquisition, and deepening client relationships. We've delivered on our commitment to positive operating leverage. I'm confident that our risk culture is intact with actions in place to effectively manage risk and improve our credit performance through next year. Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles.

Speaker Change: Record revenue of $2.9 billion was up 7% driven by higher net interest income, reflecting both solid balance growth and improved margins while non-interest revenue remained flat.

Gerald White: I'm confident that our risk culture is intact with actions in place to effectively manage risk and improve our credit performance through next year. Our teams are executing on a clear and consistent strategy for sustained operating performance that will endure through credit cycles.

Speaker Change: The transition of bankers acceptance is to loans, resulted in lower lending revenue offset in net interest income.

Speaker Change: Expenses were up to percent reflecting higher employee-related operating and technology costs.

Tayfun Tuzun: I'll now turn it over to Tayfun. Thank you, Darrell.

Speaker Change: Partially offset by severance in the prior year.

Tayfun Tuzun: Good morning and thank you for joining us. My comments will start on slide 10. Third quarter reported EPS was $2.48 and net income was $1.9 billion. The adjusting items are shown on slide 39. And the remaining remainder of my comments will focus on adjusted results. Adjusted EPS was $2.64 down from $2.94 last year and net income was $2.00 billion, down 8% as strong PPPT growth of 8% was offset by higher PCL.

Speaker Change: Lones were up 6% with good growth across consumer and commercial products, and deposits were up 11% reflecting continued growth and transactional and term products across both consumer and commercial clients.

Speaker Change: Moving to USBNC on slide 17, my comments here will speak to the US dollar performance.

Speaker Change: Net income was down due to higher PCLs, well TPPT growth and operating leverage were strong at 6% and 4.9% respectively.

Tayfun Tuzun: Record PPPT of $3.5 billion was driven by strong operating performance across our businesses with positive operating leverage of 5.2%. Excluding lower insurance revenue, which was inflated last year due to market impacts related to the IFRS 17 transition, revenue was up 2% and expenses were down 1% excluding severance in the prior year. PCL increased $414 million, which Piyush will speak to in his remarks. Moving to slide 11, average loans grew 6% year over year excluding the impact of the RV loan portfolio sale and the wind down of the indirect auto book driven by good growth in residential mortgages and business and government loans.

Speaker Change: Revenue was down slightly driven by lower non-interest revenue due to lower deposit and cart fees and personal and business banking.

Speaker Change: Net interest income remained flat with balance growth offset by a five-day-suppoint reduction in margins, which has actually performed better than industry trends.

Speaker Change: The expenses were down, reflecting good expense management, including costs, synergies, and operational efficiencies, and lower severance costs.

Speaker Change: Lones were up 4% excluding the impact of the RV Loneport Puyush Al.

Speaker Change: Deposes we're out 4% with strong growth in termin money markets.

Speaker Change: Offseting decreases in not intersparing the balances.

Speaker Change: sequentially deposits were up 1% as we see the shift to an interest bearing from non-interest bearing deposits it's stabilizing.

Tayfun Tuzun: Strong growth and customer deposit that deposits continues with average balances up 9% from last year driven by higher deposits in our US and Canadian personal and commercial businesses. Turning to slide 12, on an x-training basis, net interest income was unchanged from the prior year as balanced growth was offset by lower margins. And up 5% sequentially, including the impact of two additional days in the quarter. Compared with last quarter, NIM was up 1 basis point.

Speaker Change: Moving to slide 18.

Speaker Change: Bimo Welth Management Net Income reflected year over year growth of 44% in Welth and Asset Management, offset by decline and insurance from the impact of the transition to IFRS 17.

Speaker Change: Welton Asset Management Revenue was up 7% reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year.

Speaker Change: Moving to slide 19.

Speaker Change: BMO Capital Market's net income was up 31% year over year, reflecting continued strong KPPT of $625 million in the quarter, consistent with our guidance, and partially offset by higher PCLs.

Tayfun Tuzun: In both Canadian and US PNC, NIM decreased 3 basis points sequentially. Lower deposit margins continue to pressure NIM this quarter but to a lesser extent as pricing and the shift to term deposits is stabilizing. At the old bank level, we maintain our expectation of relative margin stability for the remainder of the year. Canadian PNC NIM is expected to tighten mainly due to higher loan growth relative to deposit growth, while US PNC is expected to be modestly higher.

Speaker Change: Revenue in global markets was up 16% reflecting higher equity and interest rate trading. Investment and corporate banking revenue was up 11% on higher advisory fees and corporate banking related revenues.

Speaker Change: Expenses were down due to a legal provision and severance in the prior year.

Speaker Change: Assuming markets remain constructive, we expect Apple markets to continue to deliver a PPPC within the 625-650 million dollar range guidance provided earlier.

Tayfun Tuzun: Turning to slide 13, we maintain a relatively neutral position to changes in interest rates, consistent with our strategy and we believe that we are well positioned for the declining rate environment. Moving to slide 14, expenses continue to be well managed and declined 5% driven by the full realization of both the Bank of the West Cost Synergies and broader operational efficiencies, as well as the impact of higher severance and legal provisions in the prior year, which more than offset underlying growth and operating expenses and business investments.

Speaker Change: Turning out to slide 20 corporate services net loss was $236 million compared with $244 million in the prior quarter. It's higher revenue and lower expenses offset higher PCL.

Speaker Change: To conclude, while as Darrell said our provisions have exceeded our expectations, similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT and positive operating leverage in line with our expectations.

Tayfun Tuzun: We delivered on our commitment to pause of operating leverage again this quarter and expect the same next quarter, despite a typical fourth quarter sequential uptick in expenses. Turning to slide 15, our capital position remains strong with a CT1 ratio of 13%. Internal capital generation was offset by higher source currency RWA due to asset growth and to a lesser extent the impact of credit migration as well as an increase in market risk RWA from the low levels in the second quarter.

Darrell: The steady rise in our operating performance through the credit cycle is the result of the underlying strength of our franchise.

Darrell: and our business and geographic diversity.

Darrell: We will continue to execute on our strategic priorities and invest for growth and look to leverage the strength of our balance sheet and our capital to build lasting shareholder value.

Darrell: I will now turn it over to Piyush.

Piyush: Thank you, Tayfun and good morning, everyone.

Piyush: First, I'll start with some context for our overall credit position.

Piyush: Consistent with trends over the last few quarters, we continue to experience credit outcomes reflective of the current credit cycle.

Tayfun Tuzun: Our capital outlook remains strong and is still likely to remain above our 12.5% management target. Moving to the operating groups and starting on slide 16, Canadian PNC net income was up 3% year over year driven by strong PPPT performance up 12% partially offset by higher PCLs. Record revenue of $2.9 million was up 7% driven by higher net interest income, reflecting both solid balance growth and improved margins, while non interest revenue was reduced by higher revenue remained flat.

Piyush: Notwithstanding the early stages of easing monetary policy in Canada and the potential for rate cards in the US, zeta this year, specific client segments continue to feel the impact of prolonged elevated interest rates.

Piyush: Titanium of Credit Conditions as well as shifting consumer demand for product and services.

Piyush: Moreover rising unemployment in Canada and reduced pandemic-related liquidity, or challenging consumer and business balance sheet.

Piyush: This is like to credit down Great In A Portfolio with higher watch list and impairments.

Tayfun Tuzun: The transition of bankers acceptances to loans resulted in lower lending revenue offset in net interest income. Expenses were up 2% reflecting higher employee related operating and technology costs, partially offset by severance in the prior year. Loans were up 6% with good growth across consumer and commercial products and deposits were up 11% reflecting continued growth and transactional and term products across both consumer and commercial clients.

Piyush: On slide 22, this quarter's total provision for credit losses was $906 million of 54 basis points.

Piyush: In fact, provisions were $828 million or 50 basis points up nine basis points from last quarter, largely driven by higher provisions in our whole cell book.

Piyush: Canadian person and business banking impaired losses were up to $27 million from prior quarter, driven by higher disinquencies and insolvencies, an unssecured retail product with a mortgage portfolio continuing to perform well.

Piyush: We continue to take actions to manage losses within these portfolios, including reader's 20 engagement with customers most vulnerable to payment stress.

Tayfun Tuzun: Moving to US PNC on slide 17, my comments here will speak to the US dollar performance. Net income was down due to higher PCLs, while PPPT growth and operating leverage were strong at 6% and 4.9% respectively. Revenue was down slightly driven by lower non interest revenue due to lower deposit and cart fees and personal and business banking. Net interest income remained flat with balanced growth offset by a 5 basis point reduction in margins, which has actually performed better than industry trends.

Tayfun Tuzun: Net income was down due to higher PCLs, while PPPT growth and operating leverage were strong at 6% and 4.9% respectively. Revenue was down slightly driven by lower non interest revenue due to lower deposit and cart fees and personal and business banking. Net interest income remained flat with balanced growth offset by a 5 basis point reduction in margins, which has actually performed better than industry trends. Expenses were down reflecting good expense management, including cost synergies and operational efficiencies and lower severance costs.

Piyush: In commercial banking, impaired losses increased $31 million in Canada and $55 million in the U.S.

Piyush: The capital of the market's lost disorder was mainly driven by one account in the services sector.

Piyush: On slide 23, we provide additional information on our business and government portfolio.

Piyush: Over the last few quarters the whole cell port for you has experienced negative migration and elevated losses.

Speaker Change: As a dadal noted, 15 accounts grow almost 50% of year-to-date wholesale impact revisions.

Tayfun Tuzun: Expenses were down reflecting good expense management, including cost synergies and operational efficiencies and lower severance costs. Loans were up 4% excluding the impact of the RV loan portfolio sale. Deposits were up 4% with strong growth in term in money markets, offsetting decreases in not interest bearing deposits. Sequentially deposits were up 1% as we see the shift in interest bearing from non interest bearing deposits stabilizing.

Speaker Change: and as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be veritable and in fact, this quarter, two accounts drove the nine basis point increase in impaired provisions over prior quarter.

Tayfun Tuzun: Loans were up 4% excluding the impact of the RV loan portfolio sale. Deposits were up 4% with strong growth in term in money markets, offsetting decreases in not interest bearing deposits. Sequentially deposits were up 1% as we see the shift in interest bearing from non interest bearing deposits stabilizing. Moving to slide 18, BMO wealth management net income reflected year over year growth of 44% in wealth and asset management. Offset by decline in insurance from the impact of the transition to IFRS 7.

Speaker Change: Two sectors we continue to monitor closely are transportation where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced portraits. Although there are early signs of stabilization.

Tayfun Tuzun: Moving to slide 18, BMO wealth management net income reflected year over year growth of 44% in wealth and asset management. Offset by decline in insurance from the impact of the transition to IFRS 7. 17. Wealth and asset management revenue was up 7%, reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year.

Speaker Change: and commercial real estate with the portfolio continues to perform in line with our expectations, including a partial recovery this quarter of a prior provision.

Speaker Change: The wholesale portfolio remains well diversified with over half rated investment grade.

Tayfun Tuzun: 17. Wealth and asset management revenue was up 7%, reflecting good growth in client assets and market appreciation more than offsetting lower net interest income. Expenses were lower due to severance in the prior year. Moving to slide 19, BMO capital markets net income was up 31% year over year, reflecting continued strong PPPT of $625 million in the quarter. Wealth with our guidance and partially offset by higher PCLs. Revenue in global markets was up 16%, reflecting higher equity and interest rate trading, investment in corporate banking revenue was up 11% on higher advisory fees and corporate banking related revenues.

Speaker Change: Moving to slide 24, performing provision for credit losses of 78 million dollars primarily reflected for the credit migration.

Speaker Change: We have added to performing allowances for the last nine quarters and are appropriately reserved with the total performing allowance of $3.8 billion of 56 basis point coverage over performing allowance.

Tayfun Tuzun: Moving to slide 19, BMO capital markets net income was up 31% year over year, reflecting continued strong PPPT of $625 million in the quarter. Wealth with our guidance and partially offset by higher PCLs. Revenue in global markets was up 16%, reflecting higher equity and interest rate trading, investment in corporate banking revenue was up 11% on higher advisory fees and corporate banking related revenues. Expenses were down due to illegal provision and severance in the prior year. Assuming markets remain constructive, we expect capital markets to continue to deliver. Over PPPT within the $625 to $650 million range guidance provided earlier.

Speaker Change: We expect credit migration will continue which in turn will drive increases to the allowance for the next few quarters.

Speaker Change: turning to slide 25.

Speaker Change: In fact, formations of $1.8 billion decrease, $141 million due to lower business and government formations.

Tayfun Tuzun: Expenses were down due to illegal provision and severance in the prior year. Assuming markets remain constructive, we expect capital markets to continue to deliver. Over PPPT within the $625 to $650 million range guidance provided earlier. Turning out to slide 20, corporate services net loss was $236 million compared with $244 million in the prior quarter as higher revenue and lower expenses offset higher PCL.

Speaker Change: Gross impaired loans increased to $6 billion of 89 basis points with increases primarily in commercial wealth state, manufacturing, and transportation.

Speaker Change: Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to variability.

Tayfun Tuzun: Turning out to slide 20, corporate services net loss was $236 million compared with $244 million in the prior quarter as higher revenue and lower expenses offset higher PCL. To conclude, while as Darrell said, our provisions have exceeded our expectations similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT and positive operating leverage in line with our expectations. The steady rise in our operating performance through the credit cycle is the result of the underlying strength of our franchise and our business and geographic diversity. We will continue to execute on our strategic priorities and invest for growth and look to leverage the strength of our balance sheet and our capital to build lasting shareholder value.

Speaker Change: As rates fall and unemployment stabilizes, we expect credit performance for the trend towards long-term averages through 2025. I will now turn the calls back to the operator for the Q&A portion of this call.

Tayfun Tuzun: To conclude, while as Darrell said, our provisions have exceeded our expectations similar to last quarter, this quarter demonstrated continued good operating performance with improving revenues, PPPT and positive operating leverage in line with our expectations. The steady rise in our operating performance through the credit cycle is the result of the underlying strength of our franchise and our business and geographic diversity. We will continue to execute on our strategic priorities and invest for growth and look to leverage the strength of our balance sheet and our capital to build lasting shareholder value.

Speaker Change: Thank you. We will not take questions from the telephone lines. If you have a question, please press star 1 on your devices keypad. You may cancel your question at any time by pressing star 2.

Speaker Change: Please press star one at this time if you have a question, there will be a brief pause for a participant for just a full questions. We thank you for your patience.

Speaker Change: A first question is from Doug Young, from Desjardent Capital Market. Please go ahead.

Doug Young: Good morning, I'm the PCL. The guidance was for impaired to be in line with Q2, it was up 9 basis points and I get the things changed, just curious.

Piyush Agrawal: I will now turn it over to Piyush. Thank you, Typhoon, and good morning, everyone. First, I'll start with some context for our overall credit position. Consistent with trends over the last few quarters, we continue to experience credit outcomes reflective of the current credit cycle. Notwithstanding the early stages of easing monetary policy in Canada and the potential for rate cuts in the US later this year, specific client segments continue to feel the impact of prolonged elevated interest rates, tightening of credit conditions as well as shifting consumer demand for products and services.

Piyush Agrawal: I will now turn it over to Piyush.

Piyush Agrawal: Thank you, Typhoon, and good morning, everyone. First, I'll start with some context for our overall credit position. Consistent with trends over the last few quarters, we continue to experience credit outcomes reflective of the current credit cycle. Notwithstanding the early stages of easing monetary policy in Canada and the potential for rate cuts in the US later this year, specific client segments continue to feel the impact of prolonged elevated interest rates, tightening of credit conditions as well as shifting consumer demand for products and services.

Speaker Change: You know what surprised you and you mentioned in Piyush Piau's like they were me elevated for a few quarters.

Speaker Change: What gives you confidence that it's going to be referred to the long-term average in fiscal 25. And is this more mid-way through fiscal 25, early 25, just hoping to get some color?

Speaker Change: Yep, no thanks to Dougs, thanks for the question.

Speaker Change: When we look at our overall impaired PCL performance, there are several reasons for this elevated number disorder. I think as we all know the current environment is complex and changing rapidly.

Piyush Agrawal: Moreover, rising unemployment in Canada and reduced pandemic-related liquidity are challenging consumer and business balance sheets. This has led to credit downgrade in our portfolio with higher watch list and impairments. On slide 22, this quarter's total provision for credit losses was $906 million for 54 basis points. Impact provisions were $828 million or 50 basis points, up to 9 basis points from last quarter, largely driven by higher provisions in our wholesale book. Canadian personal and business banking impaired losses were up to $27 million from prior quarter, driven by higher disinquencies and insolvencies in unsecured retail products, with a mortgage portfolio continuing to perform well.

Speaker Change: But overall, when we provided guidance, I would say our retail losses have been in a tight range of what we expected and that's pretty expected because of the frequencies and what's flowing through that book.

Speaker Change: It's influenced a little bit by Canadian insolvencies as you've seen, those continue to be high.

Speaker Change: and then in large part of the whole cell book has also performed.

Speaker Change: [inaudible]

Speaker Change: where it has been a little challenging is the variability on a few large names that we have discussed before.

Speaker Change: and so the veribilty, what I call is unexpected losses that have a lower probability.

Piyush Agrawal: We continue to take actions to manage losses within these portfolios, including pre-delinquency engagement with customers most vulnerable to payment stress. In commercial banking, impaired losses increased $31 million in Canada and $55 million in the US. The capital markets lost this quarter was mainly driven by one account in the services sector. On slide 23, we provide additional information on our business and government portfolio. Over the last few quarters, the wholesale portfolio has experienced negative migration and elevated losses.

Speaker Change: seem to be a significant part of any credit cycle and that's what you're seeing right now.

Speaker Change: So, we are in a fuzzy tight range from that expectation as we look forward.

Speaker Change: It's hard to give you a number or a range only because of this variability over a quarter, but over a year

Speaker Change: We can tell you where it's coming. So we expect this will be elevated as we go through the next one or two quarters. Starts to start coming down and by the end of the year it should start rewarding to our long-term average. That's that's our expectation. We provide you more guidance as we get through next quarter.

Speaker Change: and just to clarify so

Piyush Agrawal: As Daryl noted, 15 accounts drove almost 50% of year-to-date wholesale impaired provisions. And as I've said before, in a large wholesale portfolio like ours, quarterly provisions can be wearable. And in fact, this quarter, two accounts drove the nine basis point increase in impaired provisions over prior quarter. Two sectors we continue to monitor closely are transportation, where the trucking segment has been in a cyclical downturn with weak freight volumes and reduced spot rates.

Speaker Change: You're more expecting the reversion to the long-term average closer to the end of fiscal 2025, not through the entire year. And then the 50 basis points, when you last quarter you said, for me, it elevated and flat sequentially, so in the 40.

Vessus Monterey: Vessus Monterey, and Terrod, we're at 50 now. That 50 is kind of like the proper starting point to think about the remaining elevated over the next few quarters of that, correct?

Speaker Change: Yeah, I would say...

Speaker Change: When we think elevated, we know each other is higher, it's hard to pinpoint the number because of the variability. He's up back at this quarter. Nine basis points was...

Piyush Agrawal: Although there are early signs of stabilization and commercial real estate, where the portfolio continues to perform in line with our expectations, including a partial recovery this quarter of a prior provision. The wholesale portfolio remains well diversified with over half rated investment grade. Moving to slide 24, performing provision for credit losses of $78 million primarily reflected portfolio credit migration. We have added to performing allowances for the last nine quarters and are appropriately reserved with the total performing allowance of $3.8 billion of 56 basis point coverage over performing loans.

Speaker Change: You know, two accounts is up back here to date 50% was 15 accounts

Speaker Change: So it's these one or two accounts.

Speaker Change: that can move the needle a little bit more, but we expect it to be elevated, some of it, the economic environment as you are seeing again in solvencies and things like that, but it should start coming down towards the second half of the year, you know, because it's the, as the version is the next one at two quarters.

Speaker Change: Now, I appreciate it. Thank you very much.

Speaker Change: Thank you.

Speaker Change: I'll follow in question if there are many grown-in from Skushabink. Please go ahead.

Piyush Agrawal: Piyush Agrawal, Piyush Agrawal,

Piyush Agrawal: Mr. Gorman, your line is open, you may proceed with your questions.

Piyush Agrawal: We expect credit migration will continue which in turn will drive increases to the allowance for the next few quarters. Turning to slide 25, impaired formations of $1.8 billion decreased $141 million due to lower business and government formations. Gross impaired loans increase to $6 billion of 89 basis points with increases primarily in commercial real estate, manufacturing and transportation. Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to variability. As rates fall and unemployment stabilizes, we expect credit performance will trend towards long term averages through 2025. I will now turn the call back to the operator for the Q&A portion of this call. Thank you.

Piyush Agrawal: Hi, can you hear me now? Yes, we can hear you now.

Piyush Agrawal: Thanks for that. Good morning. Gerald, I wanted to ask about a capital, 13% CQ1, a little bit below expectations, but still very strong relative to the range of 12 and 12 per cent.

Piyush Agrawal: which seems to be where remote banks are comfortable operating now, so I'm just wondering.

Speaker Change: Why, you know, by back given that kind of capital level, our credit concerns keeping you cautious and Piyush talked about migrations during the quarter. So I'm wondering if that's part of the story here.

Piyush: No, I think many thanks for the question. I think it's just more generalizing that. You know, I remind myself that we just turned...

Piyush: the Drip Discounterhoff and Q2.

Piyush: and as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet.

Operator: I will now turn the call back to the operator for the Q&A portion of this call. Thank you.

Piyush: In a position where buying back shares gets a full green light given the various uncertainties. I would say various uncertainties that we see.

Operator: We will now take questions from the telephone lines. If you have a question, please press star one on your devices keypad. You may can solve your question at any time by pressing start you. Please press star one at this time if you have a question. There will be a brief pause for participants for just a few questions. We thank you for your patience.

Piyush: out there, and we also, at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities and the expectation is we'll start to see some expansion opportunities there as we go into 2025. But look, as always, we put all of those things into the hopper and we make our decisions and we'll update you again at the end of the fourth quarter, based on where those conditions are. Is that helpful?

Doug Young: Our first question is from Doug Young from Deshardens Capital Markets. Please go ahead. Good morning. On the PCL, the guidance was for impaired to be in line with Q2. It was up nine basis points and I get the things changed. Just curious, you know, what surprised you when you mentioned impaired PCL's likely to be elevated for a few quarters. What gives you confidence that it's going to be referred to the long-term average in fiscal 25?

Speaker Change: Just as a follow-up where you see your comfortable operating range in terms of C.T.B.R. or elevated now, just given the environment.

Speaker Change: I don't think it's elevated for the long run. Many, I think, we've talked about 12 and a half for above as a reasonable range and it all depends on circumstances. In the short run, we'll keep a close eye on this year for the next quarter, so we'll get back to you. But there was really no change in our posture.

Doug Young: And is this more midway through fiscal 25, early 25, just hoping to get some color? Yeah, no thanks, Doug. Thanks for the question. When we look at our overall impaired PCL performance, there's several reasons for this elevated number this quarter. I think as we all know, the current environment is complex and changing rapidly. But overall, when we provided guidance, I would say our retail losses have been in a tight range of what we expected and that's pretty expected because of the inquincies and what's flowing through.

Speaker Change: Thank you.

Speaker Change: Thank you. I'll follow in question you from Abraham Puna Wana from Bank of America. Please go ahead.

Speaker Change: Good Morning!

Speaker Change: I guess a question for Piyush and maybe for Daniel on credit, so a couple of things.

Speaker Change: Likes!

Speaker Change: It seems that you have very limited visibility on credit for now.

Doug Young: That book. It's influenced a little bit by Canadian insolvencies, as you've seen, those continue to be high. And then in a large part, our wholesale book has also performed exactly for our expected model. So we have a long history of what a loss performances. And to a large part, the wholesale book has actually performed in line with our expectation where it has been a little challenging is the variability on a few large names that we have discussed before.

Speaker Change: and two questions come up. One.

Speaker Change: is there an issue in terms of the bank having too many outsized credits for its size.

Speaker Change: Because for a bank of BMO size, one loan, two loans, moving credit, meaning fully quarter of the quarter is a little bit surprising. So one, this talk through in terms of how you are approaching whole size are these old shared national credits in the US and you're having to take these charges as you go through the review with examiners.

Speaker Change: and second, just talk to the process like given what's happened in the last two quarters, help us gain some confidence that you've done some deep-type reviews, what the outcomes have been and why you have a better handle today than six months ago.

Doug Young: And so the variability, what I call is unexpected losses that have a lower probability seem to be a significant part of any credit cycle and that's what you're seeing right now. So we are in a fairly tight range from that expectation, as we look forward, it's hard to give you a number or a range only because of this variability over a quarter. But over a year, we can tell you where it's coming.

Speaker Change: Yeah, the brand thanks for that. I would say let me begin with where we are in terms of our performance.

Speaker Change: We obviously continue to look at our peers and where we are and I can't comment on any individual bank. But you know, year to date second quarter, we were at 35 basis points, a peer group was at 35 basis points. There are a bit higher right now, we'll see where everybody shapes up.

Doug Young: So we expect this will be elevated as we go through the next one or two quarters, starts to start coming down. And by the end of the year, it should start reverting to our long term average. That's our expectation. We'll provide you more guidance as we get through next quarter. And just to clarify, so you're more expecting the reversion to the long term average closer to the end of fiscal 25, not through the entire year.

Speaker Change: In the large losses we've had, I would tell you about 70% of those credits, we're not alone.

Speaker Change: We have these are syndicated facilities, we have banks, north and south of the border, in those in different ranges, different sizes, in some where the lead bank and some other lead banks. So, these aren't unique to BMO, to your point around

Doug Young: And then the 50 basis points that when you last quarter, you said remain elevated and flat sequentially so in the 40 basis point range for a period, we're at 50 now. That 50 is kind of like the proper starting point to think about the else remaining elevated over the next few quarters. Is that correct? Yeah, I would say when we say elevated, we know it's a little higher. It's hard to pinpoint a number because of the variability.

Speaker Change: What have we done? Well, we're always learning from what has happened and what can we change?

Speaker Change: and I would say we are not anticipating any radical changes to risk appetite, but we are always making refinements. I mean that's what good risk managers and bankers do to ensure we are capturing the evolving risks in the industry. I would tell you in the large losses.

Doug Young: You look back at this quarter, nine basis points was, you know, two accounts. You look back here to date. 50% was 15 accounts. So it's these one or two accounts that can move the needle a little bit more, but we expect it to be elevated. Some of it the economic environment, as you're seeing again, insolvencies and things like that, but it should start coming down towards the second half of the year, you know, because it's the elevation is the next one or two quarters. I appreciate it. Thank you very much. Thank you.

Speaker Change: There is an industry theme, there is an geography theme, these are very episodic.

Speaker Change: But many of these loans have resated to underwriting, we have done around the end of the pandemic. And those were exceptional circumstances. The liquidity was high. It carried consumers. It carried companies. The balance sheets were more liquid.

Meny Grauman: I'll following question you some mini-gromans from Scotia Bank. Please go ahead.

Speaker Change: As consumer patterns have shifted as one of the reasons many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected.

Ebrahim Poonawala: Mr. Gorman, your line is open, you may proceed with your questions. Hi, can you hear me now? Yes, we can hear you now. Thanks a lot. Good morning. Carol wanted to ask about capital. 13% CT1, a little bit below expectations, but still very strong relative to the range of 12% and 12% which seems to be where most things are comfortable operating now. So I'm just wondering why no buyback given that kind of capital level are credit concerns keeping you cautious and Piyush talked about migration during the quarter.

Meny Grauman: Mr. Gorman, your line is open, you may proceed with your questions. Hi, can you hear me now? Yes, we can hear you now. Thanks a lot. Good morning. Carol wanted to ask about capital. 13% CT1, a little bit below expectations, but still very strong relative to the range of 12% and 12% which seems to be where most things are comfortable operating now. So I'm just wondering why no buyback given that kind of capital level are credit concerns keeping you cautious and Piyush talked about migration during the quarter.

Speaker Change: So, we've gone back, looked at our entire book from through underwriting, we've done that. And really I come down to a handful of accounts that are now on a watch list.

Speaker Change: which is why we are guiding you to our higher elevated performance for the next few quarters. Just like we've said for Rita, this is get through the system. It's the same thing we believe the position is contained. It's get through the system. It's hard to pinpoint the exact quarter. But...

Abraham: In the next one, maybe two, maybe three, these names should clear the system, and that is why I've confidence in rewarding back to a long-term averages. Yeah, and Abraham is there, I would just add to that when you look back.

Ebrahim Poonawala: So I'm wondering if that's part of the story here. No, thank many. Thanks for the question. I think it's just more generalized than that. You know, remind myself that we just turned the drip discount off in Q2. And as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet in a position where buying back shares gets a full green light given the various uncertainties, I would say various uncertainties that we see out there.

Meny Grauman: So I'm wondering if that's part of the story here. No, thank many. Thanks for the question. I think it's just more generalized than that. You know, remind myself that we just turned the drip discount off in Q2. And as we assess the overall environment, I think the short answer to your question would be not yet. I think when we look at the overall environment, we're not yet in a position where buying back shares gets a full green light given the various uncertainties, I would say various uncertainties that we see out there.

Speaker Change: I think what we're experiencing here is effectively the delayed consequence of the dynamics that we're pretty unique to a pandemic. When you look back at that inflation surge, the unprecedented rise in interest rates.

Speaker Change: and you consider...

Speaker Change: You know that time in 2020 for example, when we were all coming to grips with all those dynamics around the pandemic and free money was free money from government stimulus that free money didn't discriminate where it went, everybody got it and that tends to in some cases as Piyush said pretty

Ebrahim Poonawala: And we also at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities and the expectation is we'll start to see some expansion opportunities there as we go into 2025. But look, as always, we put all of those things into the hopper and we make our decisions and we'll update you again at the end of the fourth quarter based on where those conditions are.

Meny Grauman: And we also at the same time, as I've always said, we want to maintain lots of capital for deployment when we see good customer opportunities and the expectation is we'll start to see some expansion opportunities there as we go into 2025. But look, as always, we put all of those things into the hopper and we make our decisions and we'll update you again at the end of the fourth quarter based on where those conditions are. Is that helpful?

Speaker Change: Limited List, but it covers up a lot of problems which then can come back later. Inevitably, when we look through that, there will be companies that are stranded as rates rise in inflation process, consumer preferences change, especially in certain segments. So, where are we today? I think, well, in the one hand, you know, one might say we're seeing those conditions reversing and easing. The reality is, in some cases, the impairments and the bankruptcies are just evidencing themselves while the conditions improve and that's what we have seen in previous credit cycles, because for some of those instances, it's just too late. And what we're seeing is, therefore,

Ebrahim Poonawala: Is that helpful? Just as a follow-up, where you see sort of your comfortable operating range in terms of city bar, or elevated now, just given the environment. I don't think it's elevated for the long run. Many, I think we, you know, we've talked about 12 and a half or above as a reasonable range and it all depends on circumstances. In the short run, we'll keep a close eye on this here for the next quarter or so and we'll get back to you, but there's really no change in our in our posture.

Unknown Executive: Thank you.

Meny Grauman: Just as a follow-up, where you see sort of your comfortable operating range in terms of city bar, or elevated now, just given the environment. I don't think it's elevated for the long run. Many, I think we, you know, we've talked about 12 and a half or above as a reasonable range and it all depends on circumstances. In the short run, we'll keep a close eye on this here for the next quarter or so and we'll get back to you, but there's really no change in our in our posture. Thank you.

Speaker Change: You know, it's faster rise with higher losses than we've seen historically, I will say, except for the fact that we have to remember we haven't had a recession in 15 years.

Speaker Change: and so when we look back to that recession, this is actually a very similar pattern to what we saw then in our whole cell portfolio.

Operator: I'll follow in question.

Ebrahim Poonawala: I'll follow in question. You some Hibrahim Punevala from Bank of America.

Ebrahim Poonawala: You some Hibrahim Punevala from Bank of America. Please go ahead. Good morning. I guess a question for Puyush and maybe for Darrell on credit. So couple of things like it seems that you have very limited visibility on credit for now and two questions come up. One is there an issue in terms of the bank having too many outsized credits for its size because for a bank of BMO size, one known, two loans moving credit meaningfully quarter after quarter is a little bit surprising.

Ebrahim Poonawala: Please go ahead.

Speaker Change: where we ended up having...

Ebrahim Poonawala: Good morning. I guess a question for Puyush and maybe for Darrell on credit. So couple of things like it seems that you have very limited visibility on credit for now and two questions come up. One is there an issue in terms of the bank having too many outsized credits for its size because for a bank of BMO size, one known, two loans moving credit meaningfully quarter after quarter is a little bit surprising.

Speaker Change: Hirolysis in our peers for a short period of time, which is unusual relative to a very long period of time. And I think that's kind of where we are now. The implications, as we've done that, I think you referred to the deep dive program, are pretty straightforward. You know, I mentioned earlier that 50% of our credit losses.

Ebrahim Poonawala: So one, this talk through in terms of how you're approaching whole size are these all shared national credits in the US and you're having to take these charges as you go through the review with examiners. And second, just talk through the process like given what's happened in the last two quarters, help us gain some confidence that you've done some deep type reviews, what the outcomes have been and why you have a better handle today, then six months ago.

Speaker Change: here today from 15 accounts. When we looked into weather, there are common characteristics in those 15 accounts. It's actually quite interesting.

Speaker Change: in terms of what it wasn't and what it is.

Speaker Change: It's not.

Speaker Change: A local concentration within geographies in the U.S. for example, it's not bemo legacy versus Bank of the West, there we're pretty much pro-rata. It's not a specific industry sector, what it is, there's a vintage of, I call them pandemic loans that might have had higher leverage.

Speaker Change: and larger holds than if we were able to do them again.

Speaker Change: and in some cases expansion geographies.

Speaker Change: and in most of those cases of Piyush Agrawal, the other banks involved so it wasn't unique to us, I think 70% of the time in fact.

Ebrahim Poonawala: Yeah. Hibrahim. Thanks for that. I would say let me begin with where we are in terms of our performance. We obviously continue to look at our peers and where we are and I can't comment on any individual bank, but you know, year to date, second quarter, we were at 35 basis points, our peer group was at 35 basis points, they're a bit higher right now, we'll see where everybody shapes up. In the large losses we've had, I would tell you about 70% of those credits, we're not alone.

Gerald White: I would say let me begin with where we are in terms of our performance. We obviously continue to look at our peers and where we are and I can't comment on any individual bank, but you know, year to date, second quarter, we were at 35 basis points, our peer group was at 35 basis points, they're a bit higher right now, we'll see where everybody shapes up. In the large losses we've had, I would tell you about 70% of those credits, we're not alone.

Speaker Change: They were syndicated facilities. So look, when I look forward, I think you asked about, you know, our confidence in terms of where we go from here, we know what those conditions were. We know how to screen the rest of the portfolio for those conditions and we've done that. And that's why we feel really confident that this is known and it's bounded.

Speaker Change: and the rest of the portfolio, like 99. something percent of the portfolio, doesn't exhibit those combinations of characteristics, so that's what gives us confidence in a quarter or two that this will be behind us, but we're going to have to fight through it for the next couple of quarters. Is that helpful?

Ebrahim Poonawala: We have these are syndicated facilities, we have banks, North and South of the border, in those, in different ranges, different sizes, in some, we're the lead bank, in some other the lead banks, so these aren't unique to be more, to your point around what have we done, well, we're always, you know, learning from what has happened and what can we change, and I would say we're not anticipating any radical changes to risk appetite, but we're always making refinements, I mean that's what good risk managers and bankers do, to ensure we're capturing the evolving risks in the industry, I would tell you in the large losses, there isn't an industry theme, there isn't a geography theme, these are very episodic, but many of these loans have related to underwriting, we have done around the end of the pandemic, and those were exceptional circumstances, liquidity was high, it carried consumers, it carried companies that balance sheets were more liquid, as consumer patterns have shifted as one of the reasons, many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected, so we've gone back, looked at our entire book, combed through under writings, we've done that, and really I come down to a handful of accounts that are now on a watch list, which is why we are guiding you to a higher elevated performance for the next few quarters, just like we've said for retail, this is get through the system, it's the same thing, we believe the position is contained, is get through the system, it's hard to pinpoint the exact quarter, but in the next one, maybe two, maybe three, these names should clear the system, and that is why our confidence in reverting back to our long-term averages. Yeah, and Abraham is there, I would just add to that, when you look back, I think what we're experiencing here is effectively that the late consequence of the dynamics that were pretty unique to a pandemic, when you look back at that inflation surge, the unprecedented rise in interest rates, and you consider that time in 2020, for example, when we were all coming to grips with all those dynamics around the pandemic, and free money was free money from government stimulus, that free money didn't discriminate where it went, everybody got it, and that tends to, in some cases, as Pioch said, pretty limited list, but it covers up a lot of problems, which then can come back later.

Gerald White: We have these are syndicated facilities, we have banks, North and South of the border, in those, in different ranges, different sizes, in some, we're the lead bank, in some other the lead banks, so these aren't unique to be more, to your point around what have we done, well, we're always, you know, learning from what has happened and what can we change, and I would say we're not anticipating any radical changes to risk appetite, but we're always making refinements, I mean that's what good risk managers and bankers do, to ensure we're capturing the evolving risks in the industry, I would tell you in the large losses, there isn't an industry theme, there isn't a geography theme, these are very episodic, but many of these loans have related to underwriting, we have done around the end of the pandemic, and those were exceptional circumstances, liquidity was high, it carried consumers, it carried companies that balance sheets were more liquid, as consumer patterns have shifted as one of the reasons, many of these companies are right now in a position to have higher leverage or not the same operating performance as we expected, so we've gone back, looked at our entire book, combed through under writings, we've done that, and really I come down to a handful of accounts that are now on a watch list, which is why we are guiding you to a higher elevated performance for the next few quarters, just like we've said for retail, this is get through the system, it's the same thing, we believe the position is contained, is get through the system, it's hard to pinpoint the exact quarter, but in the next one, maybe two, maybe three, these names should clear the system, and that is why our confidence in reverting back to our long-term averages. Yeah, and Abraham is there, I would just add to that, when you look back, I think what we're experiencing here is effectively that the late consequence of the dynamics that were pretty unique to a pandemic, when you look back at that inflation surge, the unprecedented rise in interest rates, and you consider that time in 2020, for example, when we were all coming to grips with all those dynamics around the pandemic, and free money was free money from government stimulus, that free money didn't discriminate where it went, everybody got it, and that tends to, in some cases, as Pioch said, pretty limited list, but it covers up a lot of problems, which then can come back later.

Speaker Change: That's helpful and I'll follow up on the shared national credit exposure later. But I had a question for you there, from an investors 10.6% ROI. Is there any short this bank again becomes a 14% ROI and what will it take together?

Speaker Change: Yeah, well, I will say to you, Abraham, we are not backing down on our midterm objective of 15% ROI and that's because we do see a path to get there. Now near-term with slower economic growth.

Speaker Change: and the higher capital levels, that might be a little bit more challenging, but as we go into the medium-term, we know how to get there, we know what the levers are, they include the normalized credits that I've just talked about, they include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment, and when we get those conditions present, those are the levers that get us there. So we're sticking to that.

Speaker Change: Good, thank you.

Speaker Change: Thank you. Following question is some Mario Mendenka from TV Security. Please go ahead. Good morning.

Mario Mendenka: So, Bemos PCLs has disclosed, gone from 21 basis points impaired last year to 50 this year. And your peers are something like 24 to 38. So, clearly something has gone wrong and I appreciate your comments around the pandemic, but the pandemic was not unique to Bemos.

Speaker Change: So, as you look back

Speaker Change: Do you see, can you identify the failures, like the underwriting failures, the mistakes that the bank made? And the reason I'm asking the question this way is because...

Speaker Change: It's been my experience that when a bank goes through something like this and I think the bank is clearly going through something relative to your peers that changes need to be made and often those changes lead to sub.

Speaker Change: Subpar Growth, until the bank figures out what went wrong. So the question is two parts. While the wrong relative to your peers and secondly does this necessarily lead to a period of below average growth as the bank retools.

Speaker Change: In terms of, you know, did we do something different, our credit underwriting policies, procedures are robust and we did not make any significant changes to our credit risk appetite over the past several years.

Speaker Change: You know, I thought about this and we've taken share in the U.S. in the last few years, it was purposeful.

Speaker Change: But it was more so in specialty segments like ABL, Sponsor Fund Landing and Dealer Finance. And these are not the areas where we are seeing an increase in impairment. And as you heard from Darrell, and Piyush, we're not synchastemic issues in the portfolio or loss is concentrated in any segment geography.

Ebrahim Poonawala: Inevitably, when we look through that, there will be companies that are stranded as rates rise, inflation persists, consumer preferences change, especially in certain segments, so where are we today, I think, well, on the one hand, one might say, we're seeing those conditions reversing and easing, the reality is, in some cases, the impairments and the bankruptcies are just evidencing themselves while the conditions improve, and that's what we have seen in previous credit cycles, because for some of those instances, it's just too late. And what we're seeing is, therefore, you know, at faster rise with higher losses than we've seen historically, I will say, except for the fact that we have to remember, we haven't had a recession in 15 years, you ever take.

Gerald White: Inevitably, when we look through that, there will be companies that are stranded as rates rise, inflation persists, consumer preferences change, especially in certain segments, so where are we today, I think, well, on the one hand, one might say, we're seeing those conditions reversing and easing, the reality is, in some cases, the impairments and the bankruptcies are just evidencing themselves while the conditions improve, and that's what we have seen in previous credit cycles, because for some of those instances, it's just too late. And what we're seeing is, therefore, you know, at faster rise with higher losses than we've seen historically, I will say, except for the fact that we have to remember, we haven't had a recession in 15 years, you ever take.

Speaker Change: It is broad-based. We had a growth strategy, but we didn't lose discipline. And we're going to, of course, look at our underwriting and portfolio management practices in a changing environment, but it's going to be to support continued growth and support our life through these times.

Speaker Change: Marius, that is not in the game. I would just add, again, exactly to the point we've said, if you think about the PCL increase, in retail, it's not unique to us, it's systemic, it's, you know, the pressures you're seeing from unemployment and insolvencies.

Marius: So then it gets back to wholesale, and I'm confident we've looked through our files, it's not thematic to a sector, yes we have a transportation finance business so the business ratings can change some of the PCL performance.

Ebrahim Poonawala: And so when we look back to that recession, this is actually a very similar pattern to what we saw then in our wholesale portfolio, where we ended up having higher losses in our peers for a short period of time, which is unusual relative to a very long period of time. And I think that's kind of where we are now. The implications, as we've done that, I think you referred to the deep dive, Abraham, are pretty straightforward.

Gerald White: And so when we look back to that recession, this is actually a very similar pattern to what we saw then in our wholesale portfolio, where we ended up having higher losses in our peers for a short period of time, which is unusual relative to a very long period of time. And I think that's kind of where we are now.

Speaker Change: Transportation, as you know and we've covered in our remarks, is going through a tough time, a tough cycle, but we've been in the business 45 years.

Gerald White: The implications, as we've done that, I think you referred to the deep dive, Abraham, are pretty straightforward. You know, I mentioned earlier that 50% of our credit losses year to date are from 15 accounts. When we looked into whether there are common characteristics in those 15 accounts, is actually quite interesting in terms of what it wasn't and what it is. It's not a local concentration within geographies in the US, for example, it's not BMO legacy versus Bank of the West there.

Ebrahim Poonawala: You know, I mentioned earlier that 50% of our credit losses year to date are from 15 accounts. When we looked into whether there are common characteristics in those 15 accounts, is actually quite interesting in terms of what it wasn't and what it is. It's not a local concentration within geographies in the US, for example, it's not BMO legacy versus Bank of the West there. We're pretty much pro rata. It's not a specific industry sector.

Speaker Change: It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we'll report those improvements as we go next quarter. And then on the whole cell.

Speaker Change: The confidence that I have is because through the reviews of the losses we've gone through, they are broadly in line with a long-term expected loss models.

Speaker Change: where you're seeing is the changes that I call unexpected losses.

Gerald White: We're pretty much pro rata. It's not a specific industry sector. What it is is there's a vintage of, I call them pandemic loans that might have had higher leverage and larger holds than if we were able to do them again. In some cases, expansion geographies. And in most of those cases at PFO pointed out there were other banks involved. So it wasn't unique to us. I think 70% of the time, in fact, they were syndicate facilities.

Speaker Change: And these are hard to call, they are hard to call, especially even they are non credit like events in certain cases or in many cases.

Ebrahim Poonawala: What it is is there's a vintage of, I call them pandemic loans that might have had higher leverage and larger holds than if we were able to do them again. In some cases, expansion geographies. And in most of those cases at PFO pointed out there were other banks involved. So it wasn't unique to us. I think 70% of the time, in fact, they were syndicate facilities. So look, when I look forward, I think you asked about, you know, our confidence in terms of where we go from here.

Speaker Change: You know, if there's an auditor designation, or if you're going through a cycle where you've got a company for sales with 10 bidders.

Speaker Change: and all of a sudden there's nobody at the end, they all go away. So those lead to some higher numbers and that's the function of a credit cycle. I think as this wade through in the next one or two quarters.

Gerald White: So look, when I look forward, I think you asked about, you know, our confidence in terms of where we go from here. We know what those conditions were. We know how to screen the rest of the portfolio for those conditions, and we've done that. And that's why we feel really confident that this is known and it's bounded. And the rest of the portfolio, like 99 point something percent of the portfolio doesn't exhibit those combinations of characteristics.

Ebrahim Poonawala: We know what those conditions were. We know how to screen the rest of the portfolio for those conditions, and we've done that. And that's why we feel really confident that this is known and it's bounded. And the rest of the portfolio, like 99 point something percent of the portfolio doesn't exhibit those combinations of characteristics. So, you know, that's what gives us the confidence in a quarter or two that this will be behind us, but we're going to have to fight through it for the next couple of quarters.

Gerald White: So, you know, that's what gives us the confidence in a quarter or two that this will be behind us, but we're going to have to fight through it for the next couple of quarters. Is that helpful?

Speaker Change: We feel pretty good about this returning back to a normal. I think the rate decreases coming in the U.S., the transmission of what's been happening to the Canada Central Bank rate cards. These are all positives that should flow through the system.

Speaker Change: So we get back to you? Yeah, you've got that leave of this many reason to take growth down in your corporate commercial

Piyush Agrawal: Piyush Agrawal,

Piyush Agrawal: No, I think Mario, it's a good question because I think what the Dean said earlier is

Ebrahim Poonawala: Is that helpful? That's helpful, and I'll follow up on the shared national credit exposure later, but I had a question for you, Darrell, from an investor standpoint, 10.6% ROE, is there any short, this bank again becomes a 14% ROE and what will it take to get there? Yeah, well, I will say to you, Ebrahim, we are not backing down on our midterm objective of 15% ROE, and that's because we do see a path to get there.

Mario Mendenka: Really important when we assess what's different about Bimo, well, our mix is a little bit different, right? We skew more wholesale, we skew more U.S., and we're seeing that there are some losses there. But, Mario, it's not a circumstance where we say, alright, that means the strategy is wrong because the reality is what that doesn't consider is that we've also delivered.

Gerald White: That's helpful, and I'll follow up on the shared national credit exposure later, but I had a question for you, Darrell, from an investor standpoint, 10.6% ROE, is there any short, this bank again becomes a 14% ROE and what will it take to get there? Yeah, well, I will say to you, Ebrahim, we are not backing down on our midterm objective of 15% ROE, and that's because we do see a path to get there.

Mario Mendenka: Better longer term growth through the development of that franchise. That's an enduring franchise with 90% of the accounts having lead or soul relationships with us.

Ebrahim Poonawala: Now near term with slower economic growth and the higher capital level, that might be a little bit more challenging, but as we go into the medium term, we know how to get there, we know what the levers are, they include the normalized credits that I've just talked about, they include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment, and when we get those conditions present, those are the levers that get us there, so we're sticking to that. Thank you.

Gerald White: Now near term with slower economic growth and the higher capital level, that might be a little bit more challenging, but as we go into the medium term, we know how to get there, we know what the levers are, they include the normalized credits that I've just talked about, they include continuing to develop positive operating leverage in the business, continuing to optimize the resources of our business and improving the US environment, and when we get those conditions present, those are the levers that get us there, so we're sticking to that.

Mario Mendenka: and when we look at where the losses are presenting, they're actually not in the areas where we've grown.

Mario Mendenka: at a much faster rate than market, where we've grown at a faster rate than market and take-and-share, we're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix that be able that leads to this for short periods of time, sometimes, and we're in one of those periods right now. It's that it's as simple as that.

Speaker Change: Thank you. I'll follow in question if I'm matu-li from Kanakorchi, Newyji. Please go ahead.

Mario Mendonca: Thank you.

Mario Mendonca: The following question is from Mario Mendonca, from TV Securities, please go ahead. Good morning. So BMOS PCLs, as you've disclosed, I have gone from 21 basis points impaired last year to 50 this year, and your peers are something like 24 to 38. So clearly, something's gone wrong, and I appreciate your comments around the pandemic, but the pandemic was not unique to BMOS. So as you look back, do you see, can you identify the failures, like the underwriting failures, the mistakes that the bank made?

Mario Mendonca: The following question is from Mario Mendonca, from TV Securities, please go ahead.

Speaker Change: Good morning, guys. You mentioned the wash list and I noticed from from to 5% of the book up from 3% at the end of 23. I can even just talk about what level of credit deterioration a company has to show before the end of on that list. And so maybe we can detail some of the indicators in what he's already put in company on that list.

Mario Mendonca: Good morning. So BMOS PCLs, as you've disclosed, I have gone from 21 basis points impaired last year to 50 this year, and your peers are something like 24 to 38. So clearly, something's gone wrong, and I appreciate your comments around the pandemic, but the pandemic was not unique to BMOS. So as you look back, do you see, can you identify the failures, like the underwriting failures, the mistakes that the bank made?

Speaker Change: As you broke up at the end, can you just repeat the last part of the question, please?

Speaker Change: Yeah, just some details on the indicator that you look for when you put a company on that watch list.

Mario Mendonca: The reason I'm asking the question this way is because it's been my experience that when a bank goes through something like this, and I think the bank is clearly going through something relative to your peers, that changes need to be made, and often those changes lead to subpar growth until the bank figures out what went wrong. So the question is two parts. What went wrong relative to your peers? And secondly, does this necessarily lead to a period of below average growth as the bank retools?

Speaker Change: So, so...

Speaker Change: We're obviously evaluating credits between our bankers and risk partners throughout a company journey with us.

Speaker Change: and as we underwrite.

Speaker Change: Risk rating changes that come through, because of high-o'-level edge, weaker cash flows, lower liquidity, is what drives on internal ratings. And when you get to a certain level, if you put you in a watch that's which really means...

Speaker Change: We are evaluating you more often. We have a higher connectivity with you. I don't think that symbolic of a problem that

Mario Mendonca: In terms of, you know, did we do something different? Our credit underwriting policies, procedures are robust, and we did not make any significant changes to our credit risk appetite over the past several years. You know, I thought about this, and we've taken share in the US in the last few years. It was purposeful. But it was more so in specialty segments, like ABL, sponsor fund lending, and dealer finance, and these are not the areas where we are seeing an increase in impairment.

Speaker Change: Something bad is imminent immediately, but it just gives us a perspective.

Speaker Change: on what the watch list is and other things we need to be doing with the client helping the client.

Speaker Change: Get back to where they started.

Speaker Change: So, I wouldn't read more around the washes other than it's a category that allows us.

Speaker Change: to continue to be highly engaged with the client and start also thinking about risk mitigation strategies, which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Mario Mendonca: And as you heard from Darryl and Peters, we're not seeing systemic issues in the portfolio or losses concentrated in any segment, geography. It is broad base. We had a growth strategy, but we didn't lose discipline. And we're going to, of course, look at our underwriting and portfolio management practices in a changing environment, but it's going to be to support continued growth and support our clients through these times.

Speaker Change: Okay, that's great, and maybe on the US expense run.

Speaker Change: Aficiency ratio dropped in a couple hundred basis points, a quarter of a quarter could progress. And you may be put in dimensions around where you said that we should end up over the median term. Should we be expecting to see a return to the low 50s high 40s in the next couple of years? Or are there mitigating factors that affect the offset cost reduction there?

Mario Mendonca: Maria, that is Nadeem. I would just add, again, exactly to the point we've said, if you think about the PCL increase in retail, it's not unique to us. It's systemic. It's, you know, the pressures you're seeing from unemployment and insolvencies. So then it gets back to wholesale, and I'm confident we've looked through our files. It's not thematic to a sector. Yes, we have a transportation finance business. So the business ratings can change some of the PCL performance.

Nadim Hirji: Maria, that is Nadeem. I would just add, again, exactly to the point we've said, if you think about the PCL increase in retail, it's not unique to us. It's systemic. It's, you know, the pressures you're seeing from unemployment and insolvencies. So then it gets back to wholesale, and I'm confident we've looked through our files. It's not thematic to a sector. Yes, we have a transportation finance business. So the business ratings can change some of the PCL performance.

Speaker Change: Yeah, as they're all said a moment ago, our broader enterprise target in the medium-term continues to be 55% along with that in the U.S.

Speaker Change: We do expect our efficiency ratio to come down to lower 50s. Obviously, it would require a better revenue environment in the U.S.

Mario Mendonca: Transportation, as you know, and we've covered in our remarks is going through a tough time, a tough cycle, but we've been in the business 40, 50 years. It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we report those improvements as we go next quarter. And then on the wholesale. The confidence that I have is because through the reviews of the losses we've gone through, they are broadly in line with a long-term expected loss model where you're seeing is the changes that I call unexpected losses.

Nadim Hirji: Transportation, as you know, and we've covered in our remarks is going through a tough time, a tough cycle, but we've been in the business 40, 50 years. It's still profitable. It just happens to have a higher PCL through a cycle. We're beginning to see some improvements. We hope we report those improvements as we go next quarter. And then on the wholesale. The confidence that I have is because through the reviews of the losses we've gone through, they are broadly in line with a long-term expected loss model where you're seeing is the changes that I call unexpected losses.

Speaker Change: and we need to realize some of the scale benefits in our efficiency ratio as we grow our U.S. business, but yes, our target remains directionally moving that ratio towards the lower 50s even to 50% potential.

Speaker Change: Alright, thank you guys for the best of luck.

Speaker Change: Thank you.

Speaker Change: Following question from Gabriel the Shane, from National Bank Financial, please go ahead. Good morning, it's one of all of you up on the line of questioning that Mario was going with earlier terms of maybe you.

Mario Mendonca: And these are hard to call. They're hard to call, especially when they're non-credit-like events in certain cases or in many cases, you know, if there's an auditor resignation, are we going through a cycle where you've got a company for a sale with 10 bidders and all of a sudden there's nobody at the end, they all go away. So those lead to some higher numbers and that's just a function of a credit cycle.

Nadim Hirji: And these are hard to call. They're hard to call, especially when they're non-credit-like events in certain cases or in many cases, you know, if there's an auditor resignation, are we going through a cycle where you've got a company for a sale with 10 bidders and all of a sudden there's nobody at the end, they all go away. So those lead to some higher numbers and that's just a function of a credit cycle.

Speaker Change: Stuff that went wrong over the past couple years, I know you're saying it's normal and...

Speaker Change: Consistent with the industry on the consumer side, but on the commercial side I'm just wondering if while you were integrating Bank of the West, maybe that watchlist wasn't as closely washed as it should have been.

Mario Mendonca: I think as this wades through in the next one or two quarters, we feel pretty good about this returning back to a normal. I think the rate decreases coming in the US, the transmission of what's been happening through the Canada Central Bank rate cuts. These are all positives that should flow through the system. So to get back to you, I believe there's any reason to take growth down in your corporate commercial business.

Nadim Hirji: I think as this wades through in the next one or two quarters, we feel pretty good about this returning back to a normal. I think the rate decreases coming in the US, the transmission of what's been happening through the Canada Central Bank rate cuts. These are all positives that should flow through the system. So to get back to you, I believe there's any reason to take growth down in your corporate commercial business.

Vyush: Yeah, I can begin to give this Vyush, and then maybe in the team can chime in.

Speaker Change: So, we've done our extensive diligence of set-to-you bank of the West portfolio fully integrated with ours. We haven't seen any different loss performance from the bank of the West yet as a few losses.

Speaker Change: this quote, but here to date, it is performing exactly in line with the expectations, exactly in line with the legacy B-Mobile portfolio. So, I wouldn't say it is.

Mario Mendonca: No, I think it's a good question because I think what Nadim said earlier is really important when we assess, you know, what's different about BIMO, well our mix is a little bit different, right? We skew more wholesale, we skew more US and we're seeing that there are some losses there, but, but Mario, it's not a circumstance where we say, all right, that means the strategies wrong because the reality is what that doesn't consider is that we've also delivered better, longer term growth through the development of that franchise.

Nadim Hirji: No, I think it's a good question because I think what Nadim said earlier is really important when we assess, you know, what's different about BIMO, well our mix is a little bit different, right? We skew more wholesale, we skew more US and we're seeing that there are some losses there, but, but Mario, it's not a circumstance where we say, all right, that means the strategies wrong because the reality is what that doesn't consider is that we've also delivered better, longer term growth through the development of that franchise.

Speaker Change: A geographic issue or something to do with Bank of the West.

Nadine: Like I said, there aren't industry-teens these are episodic events or credits that are driving some of these issues but Nadine I don't know if you would like to add more from the bank of the West and what we've done Yeah, I would just add all to exactly what Piyush said

Nadine: The portfolio is behaving very, very similar from our legacy business and our thank of the West business. Look at our new client acquisition activity.

Mario Mendonca: That's an enduring franchise with 90% of the accounts having lead or soul relationships with us. And when we look at where the losses are presenting, they're actually not in the areas. Where we've grown at a much faster rate than market, where we've grown at a faster rate than market and taken share, we're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix at BIMO that leads to this for short periods of time, sometimes, and we're in one of those periods right now. It's that, it's as simple as that.

Nadim Hirji: That's an enduring franchise with 90% of the accounts having lead or soul relationships with us. And when we look at where the losses are presenting, they're actually not in the areas. Where we've grown at a much faster rate than market, where we've grown at a faster rate than market and taken share, we're actually not experiencing the losses. So when we look at that question overall, you know, there is a business mix at BIMO that leads to this for short periods of time, sometimes, and we're in one of those periods right now. It's that, it's as simple as that. Thank you.

Nadine: and the risk profile and the probability of defaults that are coming to the portfolio. The risk culture is very, very similar as well.

Unknown Executive: Thank you.

Speaker Change: You know, we've done scrub of many accounts that Piyush talked about when we talked about the confidence we have.

Piyush: where we're going and we have this contained and we know what we got and I'm not seeing any big changes in terms of characteristics between our portfolio and back of the West.

Speaker Change: Okay, and just so I understand your credit outlook, you know, on a clear fashion, you're saying...

Unknown Attendee: I'll follow in question is some material from can a originality please go ahead. Good morning guys, you mentioned the watch list, and I know that's grown from to 5% of the book up from 3% at the end of 23. I can hear you just talking about what level of credit deterioration a company has to show before they end up on that list and just maybe some detail some of the indication looking for a company on that list.

Speaker Change: The next one to three quarters are going to be in and around, you know, the credit experience we've seen this quarter, some variability, I guess, for whenever you're calling it an idiosyncratic situation. But in and around.

Unknown Executive: Good morning guys, you mentioned the watch list, and I know that's grown from to 5% of the book up from 3% at the end of 23. I can hear you just talking about what level of credit deterioration a company has to show before they end up on that list and just maybe some detail some of the indication looking for a company on that list.

Unknown Attendee: As you broke up at the end, can you just repeat the last part of the question please? Yeah, just some details on the indicators that you look for when you put a company on that watch list. So, you know, we're obviously evaluating credits between our bankers and risk partners throughout a company journey with us. And as we underwrite, risk rating changes that come through because of higher leverage, weaker cash flows lower the quality is what drives our internal ratings.

Speaker Change: This quarter's level for the next one to three, then after that, moving towards the normalized level, which would be what?

Speaker Change: So, we're saying compared to a Q3, we expect Q4, maybe Q1, to be higher, you know, I'm not giving you a guidance around what that number is because of the variability that exists from these names.

Unknown Executive: As you broke up at the end, can you just repeat the last part of the question please? Yeah, just some details on the indicators that you look for when you put a company on that watch list. So, you know, we're obviously evaluating credits between our bankers and risk partners throughout a company journey with us. And as we underwrite, risk rating changes that come through because of higher leverage, weaker cash flows lower the quality is what drives our internal ratings.

Speaker Change: So, the next couple of quarters is ready as one, maybe two.

Speaker Change: May be three, but really it's the next two quarters given a confidence of the reviews we've done on where this will be.

Speaker Change: Also, I think the transmission, as we've talked about in many calls, the transmission of central bank policy takes about.

Unknown Executive: And when you get to a certain level, if you put you in a watch list, which really means we're evaluating you more often, we have a higher connectivity with you. I don't think that symbolic of a problem that something bad is imminent immediately, but it just gives us a perspective on what the watch list is and other things we need to be doing with the client helping the client get back to where they started.

Unknown Attendee: And when you get to a certain level, if you put you in a watch list, which really means we're evaluating you more often, we have a higher connectivity with you. I don't think that symbolic of a problem that something bad is imminent immediately, but it just gives us a perspective on what the watch list is and other things we need to be doing with the client helping the client get back to where they started.

Speaker Change: 6-12 months to go through the system, so that your start helping the markets start helping consumers.

Speaker Change: and so that's why the next couple of quarters elevated and then after that, receiving back to a long-term normal and a long-term averages are in the range of about 36 basis points.

Speaker Change: and the last 30 years. Okay, and again, this language is important here. You think higher than that, 36 or higher than what we saw this quarter?

Unknown Executive: So, I wouldn't read more around the watches other than it's a category that allows us to continue to be highly engaged with the client. And start also thinking about risk mitigation strategies, which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Unknown Attendee: So, I wouldn't read more around the watches other than it's a category that allows us to continue to be highly engaged with the client. And start also thinking about risk mitigation strategies, which is appropriate at that point of time. And you've seen that happen through various things you've done around risk mitigation and we continue to do that even now.

Speaker Change: For the next couple of quarters, higher than what you saw this quarter. Got it. All right. Well, thanks.

Speaker Change: Thank you. I'll follow in question if some John Haken from Jeffreev. Please go ahead.

Speaker Change #100: I want to do a circle back in terms of your commentary about the timing and review synergies in the bank of the Westdale. You know understandably that's very deep-wished out, but you still think that you're able to achieve what you originally thought and give us some sort of framework in terms of what you're thinking about timing moving forward now.

Unknown Executive: Okay, that's great. And maybe on the US expense front, efficiency ratio dropping a couple hundred basis points, a quarter of a quarter is good progress. And you maybe put some dimensions around where you set that ratio to end up over the median term, like should we be expecting to see a return to the low 50s high 40s in the next couple years, or are there like mitigating factors that might offset cost reductions there?

Unknown Attendee: Okay, that's great. And maybe on the US expense front, efficiency ratio dropping a couple hundred basis points, a quarter of a quarter is good progress. And you maybe put some dimensions around where you set that ratio to end up over the median term, like should we be expecting to see a return to the low 50s high 40s in the next couple years, or are there like mitigating factors that might offset cost reductions there?

Speaker Change #100: Yes, John, it's a great question in the short answer is yes. When we look at the environment, when I look at the revenue environment that's persisted for sort of...

Unknown Executive: Yeah, the, as Zaryl said a moment ago, our broader enterprise target in the medium term continues to be 55%, along with that in the US, we do expect our efficiency ratio to come down to lower 50s. Obviously, it would require a better revenue environment in the US. And, you know, we need to realize some of the scale benefits in our efficiency ratio, as we grow our US business, but yes, our target remains directionally moving that ratio towards the lower 50s, even to 50% potential.

Unknown Attendee: Yeah, the, as Zaryl said a moment ago, our broader enterprise target in the medium term continues to be 55%, along with that in the US, we do expect our efficiency ratio to come down to lower 50s. Obviously, it would require a better revenue environment in the US. And, you know, we need to realize some of the scale benefits in our efficiency ratio, as we grow our US business, but yes, our target remains directionally moving that ratio towards the lower 50s, even to 50% potential.

Speaker Change #101: a year and a half now since we saw some of the failures.

Speaker Change #102: in the U.S. banking market with higher deposit costs with competition there, and muted loan volumes. That's all it is, right? That's the press, the overall revenue pie for the overall system, that you look across the system, so the available.

Speaker Change #103: While it is less than we had forecasted, but underneath that, and that's the simple reason as to why we think it takes a little bit longer to get there, but whether we get there or not, is whether we get there, pardon me, is not a question.

Speaker Change #104: We are seeing in the meantime, within the things that we can control, lots of progress on the...

Unknown Executive: Alright, thanks, guys, I'll pass you mine.

Gabriel Dechaine: Alright, thanks, guys, I'll pass you mine.

Operator: Thank you.

Gabriel Dechaine: Thank you. I'll follow in question if some Gabriel DeShane, from National Bank Financial, please go ahead. Yeah, good morning.

Gabriel Dechaine: I'll follow in question if some Gabriel DeShane, from National Bank Financial, please go ahead. Yeah, good morning. I just want to follow up on the line of questioning that Mario was going with earlier terms of, you know, maybe you start that went wrong over the past couple of years. I know you're saying it's, you know, normal and consistent with the industry on the consumer side, but on the commercial side, I'm just wondering if, you know, while you were integrating Bank of the West, maybe that watch list wasn't as closely washed as it should have been.

Darrell: P&B side of business, lots of progress on the commercial side of the business, and even across our wealth and capital markets, and I'm just looking at our retail leader and he's going to jump in and give you some examples of that progress. Yeah, thanks, Darrell. Thank you for the question. We're seeing really good momentum in our Western markets fueled by above targeted brand awareness and consideration in the market. That's generating, as Darrell mentioned earlier, strong core deposit checking and savings growth. That's really important for us. We are positions always around getting top to your deposit growth in the U.S. as well as in Canada. We're also seeing a really strong performance from our branch network in terms of achieving the outcomes.

Gabriel Dechaine: I just want to follow up on the line of questioning that Mario was going with earlier terms of, you know, maybe you start that went wrong over the past couple of years. I know you're saying it's, you know, normal and consistent with the industry on the consumer side, but on the commercial side, I'm just wondering if, you know, while you were integrating Bank of the West, maybe that watch list wasn't as closely washed as it should have been.

Gabriel Dechaine: Yeah, I can begin Gabriel's speech and then maybe Nadim can chime in. So we've done obviously extensive diligence set to you Bank of the West portfolio is fully integrated with ours. We haven't seen any different loss performance from the Bank of the West. Yeah, there's a few losses this quarter, but year to date, it's performing exactly in line with our expectations exactly in line with the legacy BMO portfolio. So I wouldn't say it is a geographic issue or something to do with Bank of the West.

Speaker Change #105: We had anticipated they would get to our normal run rate as we would say in our more Midwest markets and we're seeing that. In particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets just to give you a flavor of the trajectory that they're on and as I said earlier, digital sales.

Dean: Strong at 40% year over a year. So the fundamentals are there. It's picking up momentum and as Darrell said it's the market becomes more indigested. We're going to see that acceleration just continue. I'll flip it over to the Dean for some comments on commercial.

Gabriel Dechaine: Like I said, there aren't industry teams. These are episodic events or credits that are driving some of these issues. But Nadim, I don't know if you would like to add more from the Bank of the West and what we've done. Yeah, I would just add on to exactly what Peter said. The portfolio is behaving very, very similar from our legacy business and our Bank of the West business. Look at our new client acquisition activity and the risk profile and the probability of defaults that are coming into the portfolio, the risk culture is very, very similar as well.

Dean: Okay, thanks, Ernie. Similarly, I'm also seeing great momentum. When I look at new client acquisition, the momentum is strong, the pipe planter is strong, and in fact last quarter was the highest new client acquisition we've had in our Western Market since integration.

Dean: The other things I also say are branding, as you know, we've been able to build a very strong brand in our new markets.

Gabriel Dechaine: We've done scrub of many accounts that Peter's talked about when we talked about the confidence we have and where we're going and that we have this contained and we know what we got. And I'm not seeing any big changes in terms of characteristics between our portfolio and Bank of the West. And just so I understand your credit outlook in a clear fashion, you're saying the next one to three quarters are going to be in and around the credit experience we've seen this quarter.

Dean: This has led us to the ability to make significant progress in building talent, so we've had significant successes and adding to our teams and getting us ready for a good goal.

Gabriel Dechaine: And just so I understand your credit outlook in a clear fashion, you're saying the next one to three quarters are going to be in and around the credit experience we've seen this quarter. Some variability, I guess, for whatever you're calling it an idiosyncratic situation. But in and around this quarter's level for the next one to three, then after that moving towards the normalized level, which would be what? Yeah, so we're saying, compared to our Q3, we expect Q4, maybe Q1 to be higher, you know, I'm not giving you a guidance around what that number is because of the variability that exists from these names.

Speaker Change #107: We added Napoleon Company to a team which an advisory firm in the Dialkahal beverage business. This is highly complementary to our wine lending business.

Speaker Change #107: and we're just now expanding our media finance business into the California market. So I would call it the Rumiaking Extremely Strong Program in the Challenging Environment. Yeah, I'd wrap it John by saying, you know, this is what...

Gabriel Dechaine: Some variability, I guess, for whatever you're calling it an idiosyncratic situation. But in and around this quarter's level for the next one to three, then after that moving towards the normalized level, which would be what? Yeah, so we're saying, compared to our Q3, we expect Q4, maybe Q1 to be higher, you know, I'm not giving you a guidance around what that number is because of the variability that exists from these names.

Speaker Change #108: Scale Benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we've had for the last year and a half. One who can invest and build capacity.

Speaker Change #108: Such that that capacity is there to take advantage of expanding environments when they come. Ends up winning in the medium term and that's the part of the play that we're in right now and we feel pretty good about it.

Gabriel Dechaine: So the next couple of quarters is ready is one, maybe two, maybe three, but really it's the next two quarters given a confidence of the reviews we've done on where this will be. Also, I think there transmission as we've talked about in many calls, the transmission of central bank policy takes about six to 12 months to go through the system. So that should start helping the market start helping consumers. And so that's why the next couple of quarters elevated and then after that, we're sitting back to a long term normal and a long term averages are in the range of about 36 basis points that we've seen over the last 30 years.

Speaker Change #109: Thanks for your call, guys, so I'll read you.

Speaker Change #110: Thank you.

Speaker Change #111: I'll follow in question if I'm in a more person from Comraq, please go ahead. Yeah, thanks for taking my question. So just on credit, I'm just wondering, like, what is really preventing you guys from providing?

Speaker Change #112: More specific guidance on PCLs, given that you guys have done this deep dive.

Speaker Change #113: in commercial wholesale exposures. Like is it because of uncertainty around the rate environment unemployment? Like what are the really the few factors preventing from going there? Because as you know, most of your peers are able to provide more specific guidance on credit losses, at least on the impaired side.

Gabriel Dechaine: Okay, and again, just languages, you know, important here, you're saying higher, higher than that, 36 or higher than what we saw this quarter. For the next couple of quarters, higher than what you saw this quarter. Got it. All right, well, thanks.

Speaker Change #113: Yeah, thanks, Lamar Spillish. You know, I would just say...

Speaker Change #114: For the retail portfolio and we don't give individual business guidance. It's easier there because of the way it flows into what an impairment is. In the whole cell in a benign environment.

Gabriel Dechaine: Thank you.

John Aiken: A following question, some John Haken, some Jeffries, please go ahead. I don't want to do a circle back in terms of your commentary, but the timing review signature to some bank of the West still understandably that's being pushed out, but do you still think that you're able to achieve what you originally thought and give us some sort of framework in terms of what you're thinking about timing moving forward now? Yeah, John, it's a great question and the short answer is, yes, when we look at the environment, when I look at the revenue environment that's persisted for sort of a year and a half now, since we saw some of the failures in the US banking market with higher deposit costs with competition there and muted, muted loan volumes.

Speaker Change #114: Again, easier. But when you get into a situation of a credit cycle where we are, it's always hard. It's always hard to put a number for a quarter. I can guide you for a year, but I can never be able to tell you exactly which quarter and how much amount. And we've seen that we've talked about this couple of times.

Speaker Change #114: We know names in impairment, we know what their expected losses might be, but what you're seeing coming out after a long period of a benign environment into this credit cycle that the variability has been very high for various reasons.

Speaker Change #114: and it's been compounded because of the rate environment, it's been compounded by credit conditions, it's been compounded by a pull back from regional banks.

Speaker Change #114: who are also active lenders in many of these areas. So, all of these.

Speaker Change #115: Good, you know, change the situation.

John Aiken: That's all it is, right? That's that's depressed the overall revenue pie for the overall system. You know that you look across the system, so the available while it is less than we had forecasted, but underneath that. And that's that's the simple reason as to why we think it takes a little bit longer to get there, but whether we get there or not is whether we get their pardon me is not a question.

Unknown Executive: That's all it is, right? That's that's depressed the overall revenue pie for the overall system. You know that you look across the system, so the available while it is less than we had forecasted, but underneath that. And that's that's the simple reason as to why we think it takes a little bit longer to get there, but whether we get there or not is whether we get their pardon me is not a question.

Speaker Change #116: But you know I can see a situation which could be as high as 50 basis point where to low 60s, high 50s, low 60s. But I'm not giving a prescriptive guidance just because in the last one or two quarters.

Speaker Change #116: One or two accounts can skew that overall number.

Speaker Change #116: and that's why you know it's good to be in the range.

John Aiken: We are seeing in the meantime within the things that we can control lots of progress on the PMBB side of the business, lots of progress on the commercial side of the business and even across our wealth and capital markets. And I'm just looking across the table here are retail leader or any going to jump in and give you some examples of that progress. Yeah, thanks, Darrell. And thank you for the question.

Unknown Executive: We are seeing in the meantime within the things that we can control lots of progress on the PMBB side of the business, lots of progress on the commercial side of the business and even across our wealth and capital markets. And I'm just looking across the table here are retail leader or any going to jump in and give you some examples of that progress. Yeah, thanks, Darrell. And thank you for the question.

Speaker Change #116: that it will be higher.

Speaker Change #116: and then shot coming down.

Speaker Change #116: Yeah, Lamar, I just say that I get what you guys are wrestling with, which is the difficulty of forecasting with precision and you'd love our CRO to tell you the data on the calendar and the exact amount that we pick at and that would be great for all of us.

John Aiken: We're seeing really good momentum in our Western markets fueled by by that above targeted brand awareness and consideration in the market that's generating as Darrell mentioned earlier, strong core deposit checking and savings growth. That's really important for us. We are positions always around getting taught to your deposit growth in the US as well as in Canada. We're also seeing a really strong performance from our branch network in terms of achieving the outcomes we had anticipated they would get to our normal run rate as we would say in our in our more Midwest markets.

Unknown Executive: We're seeing really good momentum in our Western markets fueled by by that above targeted brand awareness and consideration in the market that's generating as Darrell mentioned earlier, strong core deposit checking and savings growth. That's really important for us. We are positions always around getting taught to your deposit growth in the US as well as in Canada. We're also seeing a really strong performance from our branch network in terms of achieving the outcomes we had anticipated they would get to our normal run rate as we would say in our in our more Midwest markets.

Speaker Change #116: But just to kind of get you a little bit more behind the curtain, you know, if you imagine that you can do a reasonable job, we in anybody at projecting where you think.

Speaker Change #116: Defaults might come from, you know, not perfect but reasonable. It gets even more difficult though than when you go to the next level, which is what's the last given default.

Speaker Change #116: And we might have an assumption on what the law's given default is, but in circumstances that are, in some cases, highly unusual, that outcome could be worse, and we've seen a couple of instances where it has than any model would have forecast it, because there was no model that forecasted the very dynamics that I talked about earlier in this call.

Speaker Change #116: And so that's what makes it a little bit challenging. We do, you know, that's the tough, you know, part of the cycle, but the good news is...

John Aiken: And we're seeing that in particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets just to give you a flavor of the trajectory that they're on. And as I said earlier, digital sales, strong up 40% year over year. So the fundamentals are there. It's picking up momentum. And as Darrell said is the market becomes more integrated. We're going to see that acceleration just continue.

Unknown Executive: And we're seeing that in particular in California, California is generating about 80% of the productivity that we have in our Illinois and Wisconsin markets just to give you a flavor of the trajectory that they're on. And as I said earlier, digital sales, strong up 40% year over year. So the fundamentals are there. It's picking up momentum. And as Darrell said is the market becomes more integrated. We're going to see that acceleration just continue.

Speaker Change #116: I mean, I think he've heard Piyush say pretty clearly on the topic of where we're going from here that he thinks we go a little bit higher here for a quarter or two, but then we return to our long run average of 36 basis points.

Speaker Change #116: as we go through 2025. I hope that's actually pretty helpful. We're not trying to dodge the question. That's a fair bit of guidance we shank at least and that'll depend on the variability that goes around all of that.

John Aiken: I'll flip it over to Nadine for some comments on commercial. Okay, thanks Ernie. Similarly, I'm also seeing Greg Momentum. When I look at new client acquisition, the momentum is strong, the pipelines are strong, and in fact, last quarter was the highest new client acquisition we've had in our Western market since integration. The other thing I also say is our branding. As you know, we've been able to build a very strong brand in our new markets.

Unknown Executive: I'll flip it over to Nadine for some comments on commercial. Okay, thanks Ernie. Similarly, I'm also seeing Greg Momentum. When I look at new client acquisition, the momentum is strong, the pipelines are strong, and in fact, last quarter was the highest new client acquisition we've had in our Western market since integration. The other thing I also say is our branding. As you know, we've been able to build a very strong brand in our new markets.

Speaker Change #116: Is that helpful to Mark? Well, I'll follow you. I just sounds like it's more because of a mix issue. The other your peers are probably able to better mask it if you're in there. Yeah, perhaps. Perhaps. But I will remind us that our total losses here today are 40 basis points.

John Aiken: This has led us to the ability to make significant progress in building talent. So we've had significant successes in adding to our teams and getting us ready, points for good growth. We added zipponian company to our team, it's an advisory firm in the alcohol beverage business. This is highly complementary to our wine lending business, and we're just now expanding our media finance business into the California market. So I would call it a making extremely strong progress in a challenging environment.

Unknown Executive: This has led us to the ability to make significant progress in building talent. So we've had significant successes in adding to our teams and getting us ready, points for good growth. We added zipponian company to our team, it's an advisory firm in the alcohol beverage business. This is highly complementary to our wine lending business, and we're just now expanding our media finance business into the California market. So I would call it a making extremely strong progress in a challenging environment.

Speaker Change #117: Okay, then just a note, you guys mentioned that some of these losses in the commercial and wholesale businesses

John Aiken: Yeah, I'd wrap it, John, by saying, you know, this is what scale benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we've had for the last year and a half, one who can invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come. Ends up, ends up winning in the, in the medium term, and that's that's the, that's the part of the play that we're in right now, and we feel pretty good about it. Thanks for the call, guys, so I'll be cute.

Unknown Executive: Yeah, I'd wrap it, John, by saying, you know, this is what scale benefit should ultimately look like in the long run, which has been our thesis, which is in flat environments, which is what we've had for the last year and a half, one who can invest and build capacity, such that that capacity is there to take advantage of expanding environments when they come. Ends up, ends up winning in the, in the medium term, and that's that's the, that's the part of the play that we're in right now, and we feel pretty good about it.

Speaker Change #118: are syndicated position, so I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers, does that are involved in these loans that went bad? Does it feel like elevated PCLs are more just B-Mobile and conservative on credit? Or are they simply just more meaningful to B-Mobile?

Lemar Persaud: Thank you.

Speaker Change #119: It's hard to say because everybody gets to choose how they are doing the valuation and where they are in.

Speaker Change #120: Different parts of predimitigation and capitalist structure and things like that.

Speaker Change #121: So I really can't comment on those.

Speaker Change #122: I would tell you, we haven't tried away from our credit culture, we see a problem, we take the impairment, we take up best case estimate, we revise our best case estimate every quarter as a situation progresses and over time you've seen recoveries and I think over time you

Speaker Change #122: and that's the hope.

Speaker Change #122: But...

Speaker Change #122: In the quarter we see the impairment, I think it's a good risk practice that we shall continue which is you take the impairment then and you move forward.

Lemar Persaud: Thanks for the call, guys, so I'll be cute. Thank you.

Speaker Change #122: and Piyush Agrawal. I appreciate the time.

Piyush Agrawal: Thank you.

Lemar Persaud: A following question is from Lamar Persaud from Comrax, please go ahead. Yeah, thanks for taking my question. So just on credit, I'm just wondering like what is really preventing you guys from providing more specific guidance on PCL's given that you guys have done this. Deep dive in commercial wholesale exposures, like is it because of uncertainty around the rate environment, unemployment, like what are the really the few factors preventing you from going there?

Speaker Change #123: That's all the time we have for questions. I would not like to turn the meeting back over to that white.

Speaker Change #124: Okay, thank you operator and thank you all for your questions today. I would just wrap very quickly by doing our performance.

Speaker Change #125: reflects both the operating momentum which will endure and the higher credit cost, which have you heard we expect to moderate through 2025. Our strategic goals are firmly in place and that's because we built a clear competitive advantages in a highly fragmented US market capturing our one-clin opportunities.

Lemar Persaud: Because as you know, most of your peers are able to provide more specific guidance on credit losses, at least on the impaired side. Yeah, thanks Lamar. You know, I would just say for the retail portfolio, and we don't give individual business guidance, it's easier there because of the way it flows into what an impairment is in the wholesale in a benign environment. Again, easier, but when you get into a situation of a credit cycle where we are, it's always hard.

Speaker Change #125: across the relationships and modernizing the digital capabilities of the bank for the future. So, I'm confident in the power of our integrated North American franchise to deliver long-term value and we look forward to speaking to you again in December. Thank you.

Speaker Change #126: Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

Lemar Persaud: It's always hard to put a number for a quarter. I can guide you for a year, but I can never be able to tell you exactly which quarter and how much amount and we've seen that we've talked about this couple of times. We know names and impairment, we know what their expected losses might be, but what you're seeing coming out after a long period of a benign environment into this credit cycle, that the variability has been very high for various reasons.

Christine Viau: [inaudible] Viau, Christine Viau,

Lemar Persaud: And it's been compounded because of the rate environment, it's been compounded by credit conditions, it's been compounded by a pullback from regional banks who are also active lenders in many of these areas. So all of these could change the situation, but you know, I can see a situation which could be as high as 50 basis point where to low 60s, high 50s, low 60s. But I'm not giving you prescriptive guidance just because in the last one or two quarters, one or two accounts can skew that overall number.

Christine Viau: [inaudible] Viau, Christine Viau,

Lemar Persaud: And that's why it's good to be in the range that it will be higher and then it starts coming down. Yeah, Lamar, I just say that I get what you guys are wrestling with, which is the difficulty of forecasting with precision. And you'd love RCRO to tell you the data on the calendar and the exact amount that we peak at and that would be great for all of us. But just to kind of get you a little bit more behind the curtain, if you imagine that you can do a reasonable job, we and anybody at projecting where you think defaults might come from.

Lemar Persaud: You know, not perfect, but reasonable. It gets even more difficult though than when you go to the next level, which is what's the loss given default. And you might have an assumption on what the loss given default is, but in circumstances that are in some cases highly unusual, that outcome could be worse. And we've seen a couple of instances where it has than any model would have forecasted because there was no model that forecasted the very dynamics that I talked about earlier in this call.

Christine Viau: [inaudible] Viau, Christine Viau,

Lemar Persaud: And so that's what makes it a little bit challenging. We do, you know, that's the tough part of the cycle. But the good news is, I mean, I think you've heard Pius say pretty clearly on the topic of where are we going from here that he thinks we go a little bit higher here for a quarter or two, but then we return to our long run average of 36 basis points as we go through 2025.

Christine Viau: [inaudible] Viau, Christine Viau,

Lemar Persaud: So I, you know, I, I hope that's actually pretty helpful. We're not, we're not trying to dodge the question. That's a fair bit of a fair bit of guidance. We shank at least. And, you know, that'll depend on the variability that goes around all of that. Is that helpful to Mark? That's helpful. Yeah, it just sounds like it's, I guess, more because of a mix issue. The other, your peers are probably able to better mask it given there.

Lemar Persaud: Perhaps, perhaps, but I will, you know, I will remind us that are, you know, our total losses here today are 40 basis points. Okay, then just another, you guys mentioned that, you know, some of these losses in the commercial and wholesale businesses are syndicated positions, so I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers that are involved in these loans that went bad, does it feel like elevated PCOs are more just bemo being conservative on credit, or are they simply just more meaningful to bemo?

Lemar Persaud: Okay, then just another, you guys mentioned that, you know, some of these losses in the commercial and wholesale businesses are syndicated positions, so I'm assuming you'd see what peers are involved in these loans. When you look across some of your peers that are involved in these loans that went bad, does it feel like elevated PCOs are more just bemo being conservative on credit, or are they simply just more meaningful to bemo?

Lemar Persaud: Yeah, it's a talk to say because every bank gets to choose, you know, how they're doing the value evaluation and the where they are in different parts of credit mitigation and capital structure and things like that, so I really can't, you know, comment on those, I would tell you we haven't shied away from a credit culture, we see a problem, we take the impairment, we take a best case estimate, we revise our best case estimate, every quarter as a situation progresses, and over time you've seen recoveries, and I think over time you're going to see recoveries, and that's the hope, but in the quarter we see the impairment, I think it's a good risk practice that we shall continue, which is you take the impairment then and you move forward. Thank you.

Unknown Executive: Thank you.

Gerald White: That's all the time we have for questions, I would not like to turn the meeting back over to David White. Okay, thank you operator, and thank you all for your questions today. I would just wrap very quickly with our performance reflects both the operating momentum, which will endure, and the higher credit cost which, as you heard, we expect to moderate through 2025 our strategic goals are firmly in place, and that's because we built a clear competitive advantages in a highly fragmented US market, capturing our one client opportunities across the relationships and modernizing the digital capabilities of the bank for the future. So I'm confident in the power of our integrated North American franchise to deliver long term value, and we look forward to speaking to you again in December.

Operator: Thank you.

Operator: The conference has now ended.

Operator: Please disconnect your lines at this time, and we thank you for your participation.

Q3 2024 Bank of Montreal Earnings Call

Request a DemoDemo

BMO

Bank of Montreal

Earnings