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Sub-sector: Consumer Finance and Banking
BMO Financial
- Sector: Financial Services
- Sub Sector: Consumer Finance and Banking
- Region: Canada
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Fundamental View
AS OF 26 Aug 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 26 Aug 2024- BMO Financial Group is the fourth largest depository institution in Canada with C$1,374 bn in assets as of F2Q24 and a market capitalization of US$61 bn. Total deposits were C$938 bn at F2Q24.
- BMO operates 1,890 branches in Canada and the United States in 2024.
- As of YE23, BMO had 1,015 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 26 Aug 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 13.1% at F2Q24.
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 Metric
AS OF 26 Aug 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 2Q24 |
|---|---|---|---|---|---|
| Revenue | 17,461 | 20,509 | 26,727 | 21,694 | 23,717 |
| Net Income | 3,790 | 6,167 | 10,519 | 3,291 | 4,764 |
| ROAE | 0.94% | 0.85% | 0.85% | 0.85% | 0.85% |
| NIM | 1.58% | 1.75% | 1.75% | 1.75% | 1.75% |
| Net Charge-offs / Loans | 0.25% | 0.14% | 0.08% | 0.14% | 0.21% |
| Total Assets | 713,376 | 797,018 | 860,451 | 969,851 | 999,748 |
| Unsecured LT Funding | 51,916 | 51,915 | 64,886 | 63,418 | 62,954 |
| CET1 Ratio (Fully-Phased-In) | 11.9% | 13.7% | 16.7% | 12.5% | 13.1% |
CreditSight View Comment
AS OF 04 Sep 2024We maintain our Market perform for BMO, with our view largely unchanged by the deal for Bank of the West, now closed. Results in F3Q24 featured solid revenue growth in Canadian P&C, capital markets, and even slight growth in U.S. P&C; however provisions were higher once again as normalization combined with lumpy commercial credits. We still see asset quality as manageable. 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: September 04, 2024
Recommendation Changed: August 26, 2020
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