Sub-sector: Consumer Finance and Banking
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Fundamental View
AS OF 14 Feb 2024BMO Financial Group is rated Aa2/A+/AA-, but bail-in senior debt for BMO is rated A2 by Moody’s and A- by S&P.
BMO is geographically diversified within Canada & via its commercial banking business in the U.S. BMO has improved its revenue mix by building wealth & capital markets, though the latter has been pressured across the industry over the past year.
Business Description
AS OF 14 Feb 2024- BMO Financial Group is the fourth largest depository institution in Canada with C$1,293 bn in assets as of F4Q23, with a market capitalization of C$70 bn. Total deposits were C$910 bn at F4Q23.
- BMO operates 1,892 branches in Canada and the United States as of fiscal 4Q23.
- As of F4Q23, BMO had 1,022 branches within the United States, mostly in the Midwest. BMO ranked 11th in deposit market share in the U.S. (SNL), with a top-2 share in Illinois.
Risk & Catalysts
AS OF 14 Feb 2024BMO has a strong core deposit base in Canada and in the U.S., which mitigates the potential for a liquidity event.
BMO closed the acquisition of Bank of the West from BNP Paribas in February 2023, significantly expanding its footprint in the U.S. We don’t expect deal integration to have much impact on the credit profile. Capital remains well above requirements following deal closing, with CET1 at 12.5% at F4Q23.
We view real estate-related risk in Canada as manageable for BMO given low LTV of exposures in vulnerable markets and conservative underwriting. Commercial real estate accounts for ~10% of total loans, and office is quite manageable at ~1% of total.
Key Metrics
AS OF 14 Feb 2024$ mn | FY19 | FY20 | FY21 | FY22 | LTM 4Q23 |
---|---|---|---|---|---|
Revenue | 17,137 | 17,461 | 20,509 | 26,727 | 21,694 |
Net Income | 4,333 | 3,790 | 6,167 | 10,519 | 3,246 |
ROAE | 1.18% | 0.94% | 0.59% | 0.59% | 0.59% |
NIM | 1.65% | 1.58% | 1.59% | 1.59% | 1.59% |
Net Charge-offs / Loans | 0.14% | 0.25% | 0.14% | 0.08% | 0.14% |
Total Assets | 647,624 | 713,376 | 797,018 | 835,374 | 931,165 |
Unsecured LT Funding | 62,002 | 51,916 | 51,915 | 64,886 | 63,418 |
CET1 Ratio (Fully-Phased-In) | 11.4% | 11.9% | 13.7% | 16.7% | 12.5% |
CreditSights View
AS OF 10 Jul 2024We maintain our Market perform for BMO, with our view largely unchanged by the announcement of the deal for Bank of the West, now closed. Results in F2Q24 remained noisy for another quarter and core results were somewhat weaker than expected as provisions continued to reflect credit normalization and impacts from higher rates. BMO has successfully integrated U.S. acquisitions over the past decade. On valuation grounds with the sector trading in a tight range at the 5Y part of the curve we have a preference for the highest quality names in the group such as RBC and TD, but like BMO relative to Scotia and CIBC.
Recommendation Reviewed: July 10, 2024
Recommendation Changed: August 26, 2020
Who We Recommend
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