Q1 2025 Bank of Montreal Earnings Call
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Speaker Change: All participants please continue to standby the conference will begin momentarily. Once again. Please continue to standby we thank you for your patience.
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Speaker Change: [noise] all participants please continue to standby the conference will begin.
Speaker Change: Materially once again, please continue to standby we thank you for your patience.
Speaker Change: I know it sounds of Yountville walked us guilty duckenfield they'd be taught soup to nuts.
Speaker Change: Who pre owned at the envelope I had thought of again because that's the one that he owns the best healthy.
Speaker Change: [noise]. This conference is being recorded so it's closer to home. It's always you see all participants. Please stand by your meeting is ready to begin good morning, and welcome to BMO financial group's Q1 'twenty to 'twenty five.
Speaker Change: And the conference call for February 25th.
Christian: 'twenty 'twenty funds you host for today's Christian. Please go ahead.
Speaker Change: Thank you and good morning, we will begin the call with remarks from Darryl White Bmo's CEO, followed by Typhoon to then our Chief Financial Officer and P. S. Shangri La our chief risk Officer also present to take questions. Today are Ernie Johansen head of BMO, North American personal and business banking and team Hershey head of BMO commercial banking, Alan Tennenbaum head of.
Speaker Change: BMO capital markets, Delon Kananga head of wealth management, and Darryl Hackett female U S. C O I would ask participants to limit to one question during the Q&A 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 risks and uncertainties. Actual results may differ materially from these statements I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results management measures performance on a reported and adjusted basis and considers both to be useful instead.
Speaker Change: I think underlying business performance geralyn tested and will be referring to adjusted results in their remarks, unless otherwise noted as reported and I will now turn the call over to Dan.
Dan: Thank you Christina and good morning, everyone.
Dan: We began the year with a very strong start with first quarter adjusted net income of $2 3 billion and earnings per share of $3.04.
Dan: Pre provision pretax earnings of $4 billion increased 32% from last year.
Dan: Revenue growth was broad based up 18%, which drove strong all bank operating leverage of eight 9% and positive in each of our operating groups.
Dan: Provisions for credit losses declined from the prior quarter as expected and we continue to review and pressure test our portfolio in light of geopolitical uncertainty.
Dan: Our CET one ratio remained strong at 13, 6%, providing ample opportunity for organic growth and investment while returning capital to shareholders. We began executing our share buyback program as planned after receiving regulatory approval repurchasing one 2 million shares this quarter and a total of three.
Dan: Point 2 million shares as of today.
Dan: Return on equity improved to 11, 3% our top priority is rebuilding return on equity to achieve our target of 15% over the medium term.
Dan: At the end of last year, we laid out a path to our goal and today typhoon will expand on the steps we are taking within our U S business.
Dan: Looking at the economic backdrop.
Dan: While widespread widespread tariffs between the U S and Canada have been deferred the challenge has been put plainly before us and client conversations throughout the past few weeks. There comments on recent events have been clear trade wars introduced uncertainty and disrupt the efficient allocation of capital to that and we are seeing some.
Dan: Clients on both sides of the border adopt a more cautious posture around capital deployment.
Dan: At the same time, we are closely monitoring the implications of potential tariffs on our portfolio and working proactively to support client needs millions of customers rely on us everyday, but particularly in days of uncertainty we've been helping our clients grow and our communities thrive for over 200 years, and we've helped our clients navigate their way through all economic.
Dan: <unk> environments.
Dan: With a strong balance sheet robust capital and liquidity and a well diversified business model built to deliver a resilient performance through cycles. Our strategies are aimed at providing trusted advice to clients across our north American franchise positioning us well to compete and grow in today's dynamic operating environment.
Dan: Turning to the businesses each operating group delivered good P. P. P T growth this quarter and positive operating leverage.
Dan: Canadian P&C PPP tea was up 13% with record revenues of $3 billion, driven by customer and balance sheet growth.
Dan: Our innovative products and client focused advice are driving engagement, we've opened more than 1 million savings amplifier accounts since launch and customers have set more than $1 7 million financial goals empowering them to make real financial progress through informed financial decisions.
Dan: We recently announced the new BMO VIP Porter travel rewards credit card suite in partnership with Porter Airlines, and Mastercard, providing customers with enhanced travel benefits. We now have more than 20000 customers already on a waiting list and we're excited to announce the details of these innovative products to Canadians shortly.
Dan: In Canadian commercial banking strong revenue growth was driven by continued solid loan and deposit growth as we continue to expand and deepen client relationships, including with our award winning treasury and payments solutions.
Dan: This quarter.
Dan: We launched BMO sink in Canada, and innovative solution that integrates BMO online banking for business services directly into resource planning and accounting systems boosting the automation and efficiency for our clients.
Dan: Obviously available only in the U S and it's an example of how our North American platform brings industry, leading technologies and capabilities to clients on both sides of the border.
U S. P&C grew <unk>, 6% with revenue growth and good expense management, we're seeing continued momentum in core customer growth and digital adoption, including a 14% increase in checking account acquisition in the new west markets and overall strong performance in the Midwest.
Dan: And U S commercial banking consistent with the industry loan growth remains subdued however client engagement is strong.
Dan: We're making progress on our one client strategy growing connected relationships with strong referral growth between commercial banking capital markets and wealth and we're continuing to add top talent, particularly in the California market, we're well positioned for growth as the market improves.
Dan: BMO wealth management <unk> was up 48% with strong revenue growth in wealth and asset management, reflecting market appreciation and net new assets as well as a strong quarter for insurance as we took advantage of investment opportunities in the market.
Dan: This quarter was the highest quarter of mutual fund sales since 2015, and ETF flows continue to be strong.
Dan: Our industry, leading ETF offerings were recognized with 22 fund great a plus awards across several categories. The most of any financial organization for 2024.
Dan: We've also launched new and innovative products, helping Canadians expand their investment options across global markets.
Dan: BMO capital markets grew PPP G by 67% driven by a strong global markets trading performance across all products and strong client flows and our U S business.
Dan: Investment in corporate banking had a good quarter with higher client activity in corporate banking and underwriting.
Dan: Our results this quarter also reflect the broad based and differentiated capabilities in our metals and mining business.
Dan: BMO is a global leader and a trusted advisor across the industry and this week, we're proud to be hosting our 34th annual global metals mining and critical minerals conference.
Our strong performance this quarter reflects ongoing investments we've made in talent and technology. This quarter, we took a bold step forward in advancing our digital first agenda and joined the IBM quantum network, which will enable us to develop and deploy quantum powered solutions across our operations and deliver progress and.
Dan: Outcomes at scale by emerging human experience with cutting edge technology <unk>.
Investments like this support our commitment to driving new revenue opportunities and improving efficiency supporting stronger returns over the long term.
Dan: Before I end I want to recognize the profound impact of the recent wildfires fires in Los Angeles have had on countless individuals and families. Our thoughts are with those who have lost their homes businesses and neighborhoods in the wake of these devastating events for our employees and customers who were impacted we're providing ongoing relief.
Speaker Change: And financial assistance, and we've pledged $3 million to local charities to support recovery and rebuilding efforts I believe that California, and the L. A area will emerge even stronger out of this difficult period with that I will turn it over to types of thank.
Types: Thank you Darryl good morning, and thank you for joining US my comments will start on slide eight.
Speaker Change: First quarter reported EPS was $2.83 and net income was $2 $1 billion.
Types: Adjusting items are shown on slide 39.
Types: The remainder of my comments will focus on adjusted results.
Types: Adjusted EPS was $3.04 up from $2.56 last year, and net income was $2 $3 billion up 21%.
Types: Our OE up 11, 3% improved 70 basis points.
BMO delivered record P. P. P T a $4 billion this quarter, an increase of 32% from last year, driven by strong performance across our businesses.
Types: Revenue increased 18%, while expenses grew 9% delivering positive operating leverage of eight 9% and improving our efficiency ratio to 56, 3%.
Types: On a constant currency basis revenue increased 14% expenses increased 6% and P. P. P. T was up 28%.
Types: These sales increased $384 million from the prior year and declined $512 million from last quarter.
Types: We use will speak to this in his remarks.
Types: The effective tax rate increased to 24, 5%, including the implementation of the global minimum tax in the current quarter.
Types: Moving to slide nine at.
Types: At the end of last year, we shared with you the execution priorities to achieve our medium term ROE target of 15% for BMO.
Types: We expect our performance improvement in the U S to be a key contributor to achieve those targets.
Types: The themes on this slide closely correlate with the broader BMO priorities.
Types: Converging credit performance to our historical averages and continued disciplined commitment to positive operating leverage are two of the building blocks very similar to our BMO wide targets.
In addition to these operational business performance targets. The third component is the full capture of the bank over the west revenue synergies, which as we have discussed previously have been slower to develop due to the muted business environment that has lasted longer than anticipated.
Types: And is now expected to be more constructive.
Types: The final component is portfolio optimization, which encompasses both sides of the balance sheet.
Types: On the asset side, we intend to improve our allocation of capital across the businesses and portfolios focusing on recycling and redeploying capital to higher return opportunities.
Types: On the liability side, we have identified meaningful opportunities to improve our funding costs and deposit mix.
Types: Our medium term ROE target in the U S. It's 12% or more and we expect that will continue to improve over the longer term.
Types: We have built action plans across all of these priorities and are in the early stages of execution.
We plan to continue to report on progress against these initiatives to enable you to track our improvements along the way.
Types: Okay.
Types: Moving to slide 10 average loans grew 4% year over year on a constant currency basis, 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 commercial loans in Canadian P&C.
Strong growth in customer deposits continued with average balances up 8% from last year, excluding the impact of the stronger U S. Dollar.
Types: Sequentially Canadian deposits reflected good growth in everyday banking and commercial operating accounts and decreases in term deposits.
Types: In the U S. Total deposits were up 5% from last year and 1% sequentially.
Types: Turning to slide 11 on an ex trading basis net interest income was up 11% from the prior year and 5% sequentially.
Types: Compared with last quarter NIM ex trading was up two basis points benefiting from the rolling reinvestment at higher rates.
Types: And improving deposit mix.
Types: In Canadian P&C, NIM increased five basis points, reflecting higher loan and deposit margins in the quarter.
Types: U S. P&C NIM increased seven basis points also due to higher loan and deposit margins as well as from deposits growing faster than loans.
Types: At the all bank level, we are still projecting margin stability at this higher level.
Types: Assuming we maintain the benefits of higher long rates.
Types: In our P&C businesses, we continue to expect a stable NIM environments.
Types: Turning to slide 12, noninterest revenue was up 24% from the prior year and 15% excluding trading trading with increases across most categories and particularly in brokerage investment management and custodial fees.
Types: Banking and services fees increased 4% with lending deposit and card fees, partially offset by the shift of D. A fees to net interest income.
Types: Moving to slide 13.
Types: Expenses were up 9% from the prior year or 6%, excluding the stronger U S dollar driven mainly by higher performance based compensation.
Types: And the impact from the consolidation of certain U S retirement benefit plans in the prior year.
Types: Sequentially expenses were up 5% in constant currency, reflecting stock based compensation for employees eligible to retire and seasonality of benefits that are recognized in the first quarter of each year, which had a combined impact of $245 million.
Types: As we look forward to the rest of the fiscal 'twenty five we maintain our guidance of year over year expense growth expected to be in the mid single digit range on a constant currency basis, excluding higher performance based compensation and still deliver positive operating leverage as we continue to maintain investments.
Types: Our growth.
Types: Turning to slide 14, our CET one ratio of 13, 6% remained flat to last quarter has good internal capital generation was largely offset by higher source currency. Our W. E and the impact of $1 2 million shares repurchased through the previously announced normal course.
Types: They show a good which received regulatory approval in mid January.
Types: We repurchased an additional 2 million shares in February and expect to continue buybacks in line with expected convergence to our management target of 12, 5% C. Do you want.
Types: Moving to the operating groups and starting on slide 15.
Types: But Adrian P&C net income was down 3% year over year with strong P. P. P T growth of 13% offset by higher P. L. P. C L.
Types: Record revenue of $3 $1 billion was up 10% driven by higher net interest income, reflecting higher margins and solid balance sheet growth with deposits up 9% and loans up 6% and higher noninterest revenue.
Types: Expenses were up 7%, reflecting higher employee related and technology costs and operating leverage was strong at three 6%.
Types: Moving to U S P&C on slide 16.
Types: Comments here will speak to the U S dollar performance.
Types: Net income was down 4% due to a higher P. CLS.
Types: While the P. P P T growth and operating leverage was strong at 6% and three 1% respectively.
Types: Revenue growth of 2% was driven by increases in noninterest revenue from higher lending and deposit fees, while net interest income remained flat.
Expenses declined 1% driven by cost synergies and operational efficiencies, partially offset by higher technology costs.
Deposits were up 5% and loans were up 2%, excluding the impact of the RV loan portfolio sale in the prior year, reflecting growth in consumer loans offset by still muted commercial lending demands.
Types: Moving to slide 17, BMO wealth management net income was up 53% from last year.
Types: Wealth and asset management revenue was up 16% driven by stronger global markets net sales higher transaction revenue from increased customer activity and balanced growth across loans and deposits.
Types: Insurance revenue was up 64%.
Types: Collecting favorable market movements in the third quarter, including stronger equity markets and steeper yield curve.
Types: Expenses were up 10% driven by higher employee related expenses, including higher revenue based costs and investments in talent.
Types: Moving to slide 18, BMO capital markets delivered very strong results in the quarter with year over year net income growth of 45% and P. P. P T of $823 million up 67%.
Types: Record revenue of $2 $1 billion was up 30%, reflecting particularly strong results in global markets driven by client activity across all trading products.
Types: Investment in corporate banking revenue also increased reflecting higher corporate banking and debt underwriting revenue.
Types: Expenses were up 14%, mainly driven by higher performance based compensation technology costs and the impact of the stronger U S. Dollar.
Types: Turning now to slide 19, corporate services' net loss was $220 million compared with $316 million in the prior year as higher revenue more than offset an increase in retained expenses.
Types: To conclude our first quarter results effectively displayed the strength of our franchise.
Types: While the market environment supported strong revenue performance in capital markets. We have also seen continued expansion in our Canadian P&C business and very strong results in wealth management.
Types: In the U S. We are optimistic that the economic environment will be more conducive for loan growth and improved customer activity in our P&C business during the second half of the year.
Our overall operating performance during the remainder of the year will be impacted by the outcome of the ongoing tariff negotiations in North America.
Types: And the market environment that impacts client activity.
Types: Our market facing businesses.
Types: These uncertainties could lead to variability in the coming quarters.
Types: We will continue to manage dynamically to achieve positive operating leverage and are committed to delivering improved returns over the medium term.
Pierre: I will now turn it over to Pierre.
Pierre: Thank you typhoon and good morning, everyone.
Pierre: My comments will start on slide 21.
Pierre: Credit performance this quarter was in line with our expectation.
Pierre: With the work we've been doing embedded losses in our corporate and commercial portfolios have moderated from last quarter.
Pierre: At the same time the loss rates remain above our historical averages, reflecting the prolonged higher rate environment accumulated inflation and higher unemployment in Canada.
Pierre: The total provision for credit losses was $1 billion or 58 basis points.
Pierre: Mbank provisions for the quarter was $859 million of 50 basis points down 16 basis points from prior quarter, reflecting lower losses in our capital markets and U S commercial businesses, partially offset by higher provisions in Canadian unsecured consumer lending.
Pierre: Yeah.
Pierre: Canadian personal and business banking embedded losses of about $324 million up $49 million and U S retail embedded losses about $86 million up 13 million from prior quarter.
Pierre: Consumer loan losses in both Canada, and the U S reflect higher delinquencies and credit cards and other unsecured personal loans.
Pierre: Persistently high consumer insolvencies and unemployment continuing to inch up in Canada, we expect weakness in unsecured credit to continue through 2025.
Pierre: In our residential lending portfolio the new at risk has decreased given rate cuts over the last year.
Pierre: Variable rate mortgages and negative amortization have declined to just $2 9 billion and monthly mortgage payment increases have been moderating, but renewing customers in fact, well the 30% of renewing customers this quarter experienced a decrease in their monthly payments.
Pierre: Canadian commercial impaired loan provisions of $167 million relatively flat from last quarter by the U S. Commercial embed provisions of $226 million were down $136 million and the catheter the market's embedded losses of $35 million were down 100.
Pierre: Third $68 million from prior quarter.
Pierre: While improved from prior quarter embedded losses are still elevated in the commercial businesses, reflecting challenges for some clients, whose business models have been strained by the restrictive monetary policy and changing consumer preferences. However.
Pierre: However across the wholesale portfolios, we are seeing the pace of migration to watch this slowing.
Pierre: Moving to slide 22, the performing provision for credit losses was $152 million.
Pierre: The macroeconomic forecast in our scenarios at the end of Q1 did not include the impact of tariffs announced after January 31.
Pierre: In determining the allowance.
Pierre: We applied experienced credit judgment to reflect the impact of the uncertain environment, including the potential introduction of data on future credit conditions.
The performing provision also included the impact of downward credit migration in the quarter.
Our current allowance of $4 5 billion provides a good coverage of 65 basis points, while the performing zones, given the credit profile of our portfolio and our forecast for embedded losses in.
Pierre: In the event that the outcome of trade negotiations changes the economic outlook disability to future adjustments to the salons.
Pierre: Turning to slide 23.
Pierre: In bags formations with $2 $4 billion.
Pierre: Gross impaired loans increased to $7 billion or 1% due to higher embed zones and U S commercial consistent with prior period migrations to watch this.
Pierre: A large proportion of formations off was he are substantially collateralized, reducing the risk of loss.
Pierre: In conclusion based on our current economic outlook, which does not include the impact of a broad based status I can.
Pierre: Continue to expect embedded losses to average in the high 40 basis points for the with quarter to quarter variability.
Pierre: The macro outlook is increasingly uncertain in light of shifting create and fiscal policy pronouncements via.
Pierre: We are monitoring these developments closely and taking action to proactively manage these emerging risks.
Pierre: Over the last couple of quarters, we have conducted extensive work on several data scenarios.
Pierre: Given the diversification of the portfolio between Canada and the U S.
Pierre: <unk> capital and liquidity levels, we are in a good position to both manage these risks with a bank and help our customers.
Pierre: I will now turn the call back to the operator for the Q&A portion of the call.
Pierre: Thank you we will now take questions from the telephone lines and she has a question. Please press star one.
Pierre: And against all of your question that anytime by placing start to east.
I guess my Star one at this time if you other question on.
Pierre: The first question is from Bryan who know what else from Bank of America. Please go ahead.
Bryan: Good morning.
Speaker Change: I guess, maybe a question for you that doesn't mean, they think there's a lot of focus obviously on tennis.
Bryan: And no one knows what's going to happen.
Bryan: I think you have a unique perspective, given just the mix of your business just talk to us over the last few weeks.
Bryan: You observed any difference between U S U S commercial client base versus the Canadian commercial client base.
Bryan: How does that if headlines to lead on those two groups.
Bryan: And what what's your view on how this leaves it says again, knowing that no one knows but does that mean.
Bryan: That is a scenario for the Canadian economy, it feels like it's a recession so I.
Bryan: I don't think there is a ton of debate that but yeah I would love your perspective.
Speaker Change: Yes, Thanks Ebrahim it's.
Bryan: It's a really good question and I'll give you my sense.
Nadeem: And then I might invite nadeem to come in because he's talking to the commercial clients on both sides of the border as I am.
Nadeem: Look I I realize its a its frustrating for a lot of people. It's frustrating for you guys. It's frustrating for our clients to try to predict.
Nadeem: Where the salt lands I I would you know.
Nadeem: Start out by saying that I think it's premature.
Nadeem: Leave it or not two to front run and predict specific outcomes with high degrees of confidence because I do in my conversations to your question with clients I am reminded and they remind me the 24 days ago. This wasn't on the horizon. So we're only 24 days into this and the shelf life of any prediction within those two.
Nadeem: Four days, it's been worth about 24 hours. So it's difficult to figure out why we're all this lands in the meantime, you did hear me say in my prepared remarks that we're seeing some clients.
Nadeem: Effectively.
Nadeem: Hit the pause button on some of their commercial activity waiting for clarity capital seeks clarity as you all know and there's some uncertainty overshadowing that I think he asked me to juxtapose a little bit.
Nadeem: Canada versus the U S. I think the anxiety levels are a little bit higher than in Canada than they are in the U S. But that's not to say that there are things I D levels in the U S as well with folks who also look for a certainty to the extent that there are trading outside of the U S borders, which is applicable to a lot of our clients in our case.
Nadeem: We're working through we're working through a very various we're working through various scenarios I should say with our clients and our focus has been to control. What we can I think you saw that in the quarter with some pretty disciplined operating performance across our businesses with the build of capital and liquidity.
Nadeem: And it is the case that you know.
Our presence on both sides of the border with 40% of our earnings plus coming from the U S.
Nadeem: It is probably relatively beneficial, but that's not to say that there isn't pressure.
Nadeem: On on each side Nadeem would you would you complement that from what you're saying yeah absolutely.
Abraham: Thanks for the question Abraham.
Speaker Change: Increased uncertainty that Gerald talked about in business sentiment is playing on both sides of the border, but I agree there's.
Speaker Change: There's more encouraging optimism in the U S. Then, particularly right now in Canada. So we are seeing some slowdown in investment plans and M&A activity. Our relationship Americas managers are working very closely with our clients on both sides of the border and I Gotta Tiger Abraham our clients are not standing still here.
Speaker Change: Lots of work going on and looking at business models, creating contingency plans looking at inventory management and supply chain and utilizing tools like currency or interest rate hedging and frankly, that's how we can add value to our clients during a dynamic.
Speaker Change: Certain environment, but.
Speaker Change: I also agree with Daryl we have a very diversified client base in Canada and in the commercial bank, we have over 50% of our book in the U S and not everyone is going to be impacted equally but again until we have more clarity I do expect loan demand to slow, but I do believe our north American footprint will be advantageous.
Speaker Change: To us it will be continuing in the market for growth in a tactical way.
Speaker Change: Thanks for that and just a quick follow up <unk> 13.6, good place to be like do we see the pace of buybacks pick up from here or do you expect are you, okay with cannibalization potentially building beyond maybe closer to 14% over the coming months and quarters, Yeah, I don't I'd I'd be surprised if it were the law.
Speaker Change: Later, Abraham I mean, I think that we've got.
Speaker Change: Some benefit and the flexibility that I talked about in my prepared remarks at $13. Six you know we've got the ability to hear to watch the environment and to play according to the environment, but our intent generally speaking over the course of the coming in coming quarters would be to continue with the buyback.
Speaker Change: Thank you.
Matthew Li: Next question is from Matthew Li from Canaccord Genuity Kids go ahead.
Speaker Change: Oh, yeah, they've seen my question I like that one of your earliest slides in the deck is the U S. P&C auto you waterfall.
Speaker Change: I just didn't want to touch on the improvements, particularly in relation to bank of the blast. It does sound like there's a little bit more juice to be squeezed out of that business.
Speaker Change: Just talk about what kind of revenue synergies, you're looking for there and maybe overall in the U S business, what kind of operating performance improvements Youre expecting that makeup. The you know 200 to 200 basis points.
Speaker Change: Improvement not related to credit and balance sheet there.
Speaker Change: Thanks for the question Matthew.
Speaker Change: Two years ago, I think when we first started talking about maybe it was two and a half years ago, our revenue synergies expected related to our bank of the West acquisition, we quantified it as sort of a $450 million to $500 million of revenue pick up starting with our commercial business.
Speaker Change: Closely followed by a P M B D business and wealth management and capital markets that stands still as the target that we have.
Speaker Change: What changed since then was just the timing of capturing those revenue synergies the muted.
Speaker Change: Market environment in the U S. Unfortunately did not give us the opportunity to.
Speaker Change: So early on get on that path.
Speaker Change: And about a year ago or so we said that we expect to achieve that targets are at sort of the exit run rate in 2026. So we would expect to hit that number in 27, and our full year financial results. So that clearly is as you can see.
Speaker Change: Here one of the four cornerstones of our Aro rebuilds and today you know we are on our way there is a path to achieve those targets and we are on that path and as the improvements in markets enable us to speed that up you know, we expect to see those results showing up in our fight.
And shows in addition to some of the other elements are here, including the balance sheet optimization, which captures a profitability improvement both on the deposit side of the balance sheet as well as the loan side.
Speaker Change: And happy to get into those details about since you all the I suppose the revenue pick up I'll just stop there.
Speaker Change: Have you captured any of the synergies in your view yet yes. Yeah. We are currently in our run rates slowly progressing on that I wouldn't say that.
Speaker Change: Recaptured.
Speaker Change: A large portion of that because there's a path there's a timeline associated with it. That's why we are guiding to sort of exit run rate exiting fiscal year 'twenty six.
Speaker Change: Okay. That's helpful. Thanks.
Gabriel <unk>: Thank you next question is from Gabriel <unk> National Bank Financial. Please go ahead hi.
Gabriel <unk>: I'd Love, if you could clarify some of the.
Gabriel <unk>: The statements you made around the performing ACL are sound.
Gabriel <unk>: It sounded but you didn't deploy any specific assumptions for terrorists, but then you use some sort of expert judgment to.
Gabriel <unk>: Yeah, Seth performing you sold this quarter, just you know I I misheard I'm sure. It can be but can you maybe expand on that and what sort of assumptions, you're making if any.
Piyush: I gave it piyush.
Piyush: Just on the performing PCL, if he had the $152 million better and I think it might be helpful. If I just take a step back to talk about the performing provision through the different sentence there.
Piyush: There is a very rigorous process around performing allowance.
Piyush: We consider both portfolio dynamics and macro variables, but under accounting principles at the point of time assessment.
Piyush: Close the quarter on Jan 31, the executive orders Wanda announce and therefore, our macroeconomic forecast did not have an inclusion forked out if so our base case in our different scenarios, but without that if I'm vacations. However, given the pronouncements coming out of the U S administration.
Piyush: And we felt it was prudent to consider the sensitivities in the environment as a result of the stat of threats. So we've taken the overlay based on other vegetables, we ran to get a feel for what it might be even in the interim three that Ifs has status, we're gonna get announced.
Piyush: I can tell you is if that is implemented as announced and remain in place for a prolonged period all else being equal we would expect that deterioration in the economic outlook to then become part of our economic assumptions in maybe the second quarter or whenever that gets implemented but as of now.
Piyush: I feel very good about babies angle that we've ended the quarter.
Speaker Change: Given just the prudent allowance coverage, we have a 65 basis points. Okay. Great. That's helpful. And then I don't know.
Speaker Change: I don't know if you can handicap this uh huh.
Speaker Change: Moving target of course, but let's say the tariffs or you know what March 4th it looks like the 25% is gonna be a flop none of them.
Speaker Change: You got a 10 basis point performing PCL this quarter with a double triple and I wouldn't expect it to be like pandemic level stuff because you have to factor in government support programs and all that but just trying to get a sense of.
Speaker Change: How how much change, we could see them up but the main item.
Speaker Change: Yeah look I understand that this is this is hard but let me say, there's so many unknowns in the scatter a scenario we don't know the duration, we don't know what percentages, whether it be we don't know, which industries you might get excluded we don't know what I wonder if your fiscal policy actions the government might take here to mitigate some of the impact.
Speaker Change: And then it's also.
Speaker Change: Looked at our own individual borrowers not everybody gets impacted the same way. So it's very difficult right now without clarity to give you that perspective like we've done every quarter, we come back and provide you better guidance once those odd implemented and just sat writing stuff like that.
Speaker Change: Moving around so it's hard to give you.
Speaker Change: Directionally you heard from me and others that he didn't expect it to go up because it will result in some weakness in the economy, but we just have to figure out the extent of that and when they come back and speak to you again.
Speaker Change: I could go on but.
Speaker Change: Long time thanks.
Speaker Change: Thank you next question from many Grundman Scotiabank. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Question for Darryl and it's really about your your 15% ROIC target and really it's Kent.
Speaker Change: Can it survive a tariff scenario and if so how is it.
Speaker Change: I'm not really looking for levers that you have in particular in the U S to maybe offset some of the weakness in Canada.
Speaker Change: Yeah, It's a good question Manny thanks for it.
Speaker Change: Look at I'll remind us that the 15% ROE target in the medium term target and so the impact of whatever may come with respect to this matter.
Speaker Change: The tariff question.
Speaker Change: <unk> is one that we and others would have to work through over the course of those years.
Speaker Change: Theres not not a quarters or months as the as it pertains to the 15% medium term target.
Speaker Change: I would also say that you know when I step back from this where we're obviously.
Speaker Change:
Speaker Change: Omni present as the tariffs our conversation here, but when I look at the global economy.
Speaker Change: And I step back and look at the North American opportunity I think there's a huge advantage here in North America broadly speaking.
And with that we're not optimistic I am and our net optimist on the North American opportunity over the course of time is it possible that in the near term. If we got an extreme scenario on tariffs that that would have a negative impact on Canadian GDP. For example, which is with the fish was just referring to a moment ago.
Speaker Change: Sure.
Speaker Change: But it's also possible that it would have a lesser impact on U S. GDP and it's also possible that within the <unk>.
Speaker Change: Course of time 2345 years.
Speaker Change: We'll end up in a place that round trips to where we are today. So I'm not about to tell you that theres going to have a that we were confident that it will have a negative impact on our are we past because there's just too much variability and too much of a timeline against it right now, but those are the types of scenarios that we test against it.
Speaker Change: And just as a follow up I was just wondering if there's anything about your U S book that would make it either less susceptible are more susceptible to tariffs versus the broader U S economy. No I don't think there's any I mean, the U S book is pretty diversified many as you know so I don't think that there's anything there.
Speaker Change: Cause it to skew on either side of whatever the general outcomes ought to be.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you next question from Doug Young Digital Bank kept some markets. Please go ahead. Your line is open.
Speaker Change: Hi, good morning, So I feel like we can go back to that slide nine U S. Our own improvement.
Actually curious about the balance sheet optimization more on the liability side and.
Speaker Change: And can you remind us what's set one ratio you're assuming within this whole evolution.
Speaker Change: Doug.
Doug: So there are two let me start with where we are with a C. T. One in the U S and it is currently you know because.
Doug: Because of the nature of the U S entity and also related to some of the dynamics of the bank of the west transaction that ratio.
Doug: Has been growing quite fast and it's secreting and it will probably continue to accrete.
Doug: But at this point, we are basically assuming that accretion will be redeployed into business growth.
Doug: And we will not will not be an impediment to achieve the 12% ROE target. So I think I would if I were you I thought you were modeling our financial in the U S. I would roughly use a similar capital ratio that we are using.
Doug: For our BMO enterprise level, so that 12, and a half year of 13% is probably the right number.
Doug: Okay, and then the balance sheet optimization.
Doug: On the balance sheet optimization side as I mentioned it encompasses loans and deposits. We do know today compared to the peers, we have a higher cost of funds that relates to the nature of the composition of our deposit book, we have more commercial deposits than our peers and you know we have we.
Doug: Back of the West and continuing improvements in our retail franchise, we intend to increase our consumer deposits within the deposit book in each business, there's always opportunities to reduce our dependence on higher cost.
Doug: Deposit so that is underway you know both businesses are already executing those and we will make improvements on the asset side. There are three layers. We look at this at a relationship level is the relationship in the long term going to hit our return targets at the portfolio level is it a portfolio that is suited to achieve.
Doug: Oh, the return targets and at the business level and those efforts are also analytically as well as from an execution perspective are underway, we intend to improve the recycling and reallocation of capital across all three layers and as you can see it has a meaningful impact that shows up into <unk>.
Doug: Poor quite you know four four it sort of boxes are and I think if we're not going to stop that even beyond 2000, 2017, I'm sorry, 2027 of those efforts will continue and help us achieve the 12% target.
Speaker Change: Just to finish off on it's like so 12% is the medium term target and I get it but what what's the ultimate goal that U S business I assume it's about 12% like where do you think you can take that.
Doug: So.
Doug: If you go back to pre bank of the West.
Times and acknowledging that goes were very mild credit periods with really no PCL build.
Doug: Our Aro in the business was you know 15, 15 plus percent, where the efficiency improvement that we've made in the business over the years. So today, we acknowledge that we're sitting on goodwill and that is going to have an impact on auto in the U S, but 12% is still 3% away.
Doug: From that 15% number pre bank of the west So we believe.
Doug: That's over sort of a five year plus period.
Doug: We can get closer to 15% with continued optimization of the balance sheet and continued execution of the <unk> business priorities.
Speaker Change: Appreciate the color. Thank you.
Mario Mendonca: Thank you. The next question is from Mario Mendonca TD Securities. Please go ahead.
Mario Mendonca: If you could just sort of sticking with that slide from.
Speaker Change: Six to 12 per cent. It sounded like you were you were suggesting that capital will be recycled so there's not going to be new capital being allocated to the U S to grow earnings. So if we assume for a moment that capital allocated to the U S is just steady it's caught some let's call it.
Speaker Change: Is the message then that you can double earnings more than double earnings in the U S. Because it says 12 plus more than double earnings in the U S. Over the next three to five years is that is that the message.
Speaker Change: Hum.
Speaker Change: I think the numbers probably aren't close I don't have yet I don't know how you thought it would be exactly what earnings levels that we already had you seen but the math works that way, but you can see here, where you know that like some of these are very discrete numbers like normalized PCL moving that to sort of the mid thirties.
Speaker Change: And we don't expect that to take years, we expect that to get there you know what a couple of years longest time. So those are very discrete numbers.
Speaker Change: <unk> that are going to have a large impact on bottom line revenue and then the $500 million revenue synergy that I. Just mentioned that also is a big contributor to this and then if you sort of compound the operating performance that we've been able to achieve at the enterprise level. There is no really big impediments towards that goal.
Speaker Change: And Ah and then also just a reminder that.
Speaker Change: That slide as U S. P N C. It's not necessarily like our full segment, our full segment, obviously as wealth management capital markets and in India.
Speaker Change: Those financials as well okay.
Speaker Change: Slightly different question trading revenue arguably 400 $500 million higher this quarter than an average over the long term.
Speaker Change: I know that Q1s are special because they include a particular trade.
Speaker Change: Involving U S. Bank's Q4, what I'm interested in is.
Speaker Change: Of that four or $500 million benefit this quarter could you assign a particular portion of that specifically to the Q1 seasonality benefits like what I'm really trying to get at is how are properly does trading return to normal or is there something more sustainable.
Speaker Change: Hi, This is Alan I'll take that and clearly as you are aware, we do experience over a year and a consistent trade, but this again is a feature that we experience every year and some years are little better than others.
Speaker Change: But again, it's something that will show up every Q1 for us what.
Speaker Change: What we saw across our business, whether there were other parts of the business specifically, our metals trading business had an outstanding quarter, where I would focus in addition to some of those outperformers, which again are some would be expected we had much more consistent.
Speaker Change: Performance across all of our businesses for the quarter when we look across each of our operating businesses. They were ahead of our expectations. So when we think about this type of quarterly performance. It's more a function of consistency as opposed to any one business outperforming and our objective is to deliver that type of performance on a regular basis.
Speaker Change: I may just to put a final point on this did you suggest that at $1.1 billion or so of trading revenue quarterly as being most new run rate for trading no not at all what I want to suggest is that when.
Speaker Change: When we see opportunities in the market, we're well positioned and we've invested in businesses to be able to take advantage of them when there's volatility in the global macro environment as we have seen over the past quarter, we expect our teams to take advantage of that.
Speaker Change: We do not expect that that level of volatility and opportunity will be consistent throughout the year. So we do see businesses above trend right, but the performance we saw particularly in November and December we do not expect that high level of performance on an ongoing basis. That's clear. Thank you.
Speaker Change: Thank you. The next question is from Paul <unk> from CIBC. Please go ahead. Thank.
Speaker Change: Thank you and good morning.
Speaker Change: Two questions for you first one is.
Mario Mendonca: Theres a bit of a narrative or a question I've heard regarding bmo's loan composition that suggests despite your geographic advantage, having a large proportion of U S. Maybe there's something in your C&I book, because that would suggest your loan portfolio might be more susceptible to higher credit losses under tariffs.
Mario Mendonca: Scenario. So wondering if you can address that if you can provide any data on how much of what percentage of your customers have sort of cross border business that'd be helpful.
Mario Mendonca: Well, let's be sure let me try and take a stab at that I mean, the question is about the product out of but on the C&I book.
Mario Mendonca: We've done a lot of work as we have through 'twenty 'twenty four given some of the performance that we've talked about.
Mario Mendonca: And in addition to looking at a broad sector diversification. We've also looked at individual files that we believe that as more export dependency.
Mario Mendonca: Net net.
Mario Mendonca: He obviously dynamically V managing out of industrial that met our single borrower that mats.
Mario Mendonca: Got it doing many other things and if they book ready to go but I wouldn't call out.
Mario Mendonca: That particular zone at a sector, that's more vulnerable for us specifically at BMO in fact, I think the diversification has added benefits.
Mario Mendonca: And given all the fall.
Mario Mendonca: And the experience and training 24, I think you know going into the data a cycle.
Mario Mendonca: Better position, because they're tracking a wash. This way you can always leave your tracking of formations very cause obviously, so I'm not.
Mario Mendonca: Sure. If there was something else on your mind, but I feel pretty good about the work we have done enough battered in us and we have I don't know Nadeem if.
Mario Mendonca: You want to share anything else no I think you should think of you covered that very well and I worked side by side I'm looking at the portfolio.
Mario Mendonca: Many many times to make sure that as we grow it we grow it in a diversified way. So I would not characterize that we have a portfolio with our C&I or anything else that creates any sort of.
Higher tariff.
Mario Mendonca: To date, if you will and beyond that you know we also have the benefit of that north south diversification. So not only do we have.
Mario Mendonca: The business diversification, but we have good geographic diversification.
Mario Mendonca: Got it.
Mario Mendonca: And then second question is just related to the improvement in net interest margins in the U S. P&C business you highlighted a number of drivers. There just wondering if you give us sort of afford I'll quote for those drivers.
Mario Mendonca: Sustainable I E. What we continue to see NIM expansion in the near term to the same doctors.
Mario Mendonca: I'll comment on on U S. P&C NIM and then I'll just briefly comment on the broader BMO NIM.
Mario Mendonca: In the U S.
Mario Mendonca: And loan margins are holding up I think they are they they helped obviously.
Mario Mendonca: This quarter and you know this phenomenon of higher deposits of passenger deposit growth relative to loan growth also helps within the business units.
Mario Mendonca: And as we look forward you know I think in general we expect those margins to hold up pretty well as you know depending on you know as we see it today in the market. Some of these efforts that both businesses are now pursuing on the deposit.
Mario Mendonca: Deposit side also should be helpful.
Mario Mendonca: But we're not.
Mario Mendonca: We also anticipate as we said the loan growth in the second half of the year potentially start actually exceeding deposit growth. That's a negative for the overall U S. P&C as well as it is for Canadian P&C, that's a mathematical equation.
Mario Mendonca: So therefore, we are still guiding for stability, we're guiding for stability in both businesses Canadian P&C in the U S. P&C and therefore BMO you know our long standing guidance has been one of stability, but we always put a footnote and said there is upsides to that starting last year. This time, we captured 10 Bay.
Mario Mendonca: This points in the second in the last two quarters. So.
Mario Mendonca: Our prediction came through.
Mario Mendonca: And the upside is not infinite. So therefore once again, we are guiding for margin stability going forward.
Mario Mendonca: I don't know it already or Nadeem. If you guys want to comment on anything that you're seeing in your businesses.
Speaker Change: Yeah, Tony I think I would just add to your comments to say our focus is on growing core deposits in our U S business. That's checking accounts you heard Daryl speak to the fact that were up 14% just in our in our western markets. That's been a core objective is to shift that mix and ensure we have a stable core deposit.
Speaker Change: Gross fifth checking and savings accounts up overall, and that's that that's our job and that we've been seeing that shift and take place over the past couple of quarters and they'll continue throughout this year. So that's the only other comment I'd add.
But the growth in those sort of just the growth from our core deposits checking checking accounts demand deposits, especially I mean that will be additive for name correct.
Speaker Change: Sorry that would be.
Speaker Change: Accretive accretive accretive capital definitely shifting that mix is accretive overall to our objectives on the ROE V agenda right got it I'll leave it there. Thank you.
Speaker Change: Thank you. The next question is from Lamar peso.
Speaker Change: Please go ahead.
Speaker Change: Yeah, Thanks, maybe for Alan on the capital markets business and just building alone mirror. His line of questioning obviously exceptional capital markets was also looks like it's gonna be a key key theme of of Q1 can you talk about the outlook heading into Q2, and then also what would be helpful. Is if you could remind us of what a more normalized level of earnings.
Speaker Change: Or P. T. P. P grosses are appropriate for the capital markets business.
Speaker Change: Thanks Lamar.
Speaker Change: To reiterate.
The experience that we had in the first quarter really reflected outperformance of a couple of businesses, but strength across all of our businesses, which really was a result of the volatility in the marketplace that presented some excellent opportunities that we were able to take advantage of them, but also reflective of the investments that we've made when I.
Speaker Change: Mentioned, something like our metals business and Daryl touched on this but we have our mining conference. This week in order to really take advantage of that market opportunity you have to have all the pieces. We've got deep connectivity with the producers we can help them with their hedging programs. We've got the ability to store and transport the metal and then work with the buyer so the <unk>.
Speaker Change: Adjustments that we've made across that spectrum.
Speaker Change: Can really be monetized when we see a market opportunity like this at the same time, it's not necessarily reflective of consistent activities in the market and as a counterpoint we have seen that the higher levels of volatility they will have a negative impact on some of our investment bank.
Speaker Change: <unk> opportunities and we are starting to see some of the great M&A opportunities that we've been exploring slow down a little bit. So there is some balance to that business and as we think about our business overall, while we're obviously pleased with the quarter it would be premature for us to recalibrate on.
Speaker Change: What our long term expectations are we have communicated previously an expectation of 625 P. P P T and above.
Speaker Change: And when we see more consistent performance at a higher level, we can revisit that but at the moment see that as a baseline for us to continue to focus on.
Speaker Change: And then one of them or a more near term, but what about Q2 do you think some of this strength is kind of bleeding into Q2 based on what Youre seeing today.
Speaker Change: I.
Speaker Change: I would describe our markets business as above trend line, but not as strong as what they experienced in November and December.
Speaker Change: Okay I appreciate the time thank you.
Thank you the last question is from desktop.
Speaker Change: Obviously, you got some markets. Please go ahead.
Speaker Change: Thank you and my last question was just asked and answered. So we're good to go thank you very much.
Speaker Change: Thank you.
Speaker Change: There are no further question would just thought at this time I would now like to turn the meeting over to Mr. Wright. Please go ahead.
Wright: Thank you Darko.
Speaker Change: Darko and everyone else pretty questions. This morning, we had a strong first quarter as I began the call in 2025.
Speaker Change: We feel here in this room like we built our businesses to achieve consistent and enduring performance and that positions us well to manage through a dynamic environment and that's what we have is a dynamic environment I've got every confidence in our strategy and the team's ability to deliver on the superior client experiences that we've talked about and improved returns and we look forward.
Speaker Change: Speaking to you all again in May Thank you very much.
Speaker Change: Thank you the complaint says no Ida. Please disconnect your lines at this time and we thank you for your participation.
Speaker Change: Conference is no longer being recorded so it goes.
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Speaker Change: [music].