BMO details strategy to improve US profitability

• Key insight: BMO Financial Group explained Thursday why it's choosing to prioritize organic growth in the U.S. over buying another bank.
  
• What's at stake: BMO is trying to achieve a return on equity in the U.S. of at least 12%.
  
• Forward look: The bank's organic growth strategy is critical to achieving its ROE target, CEO Darryl White said.

BMO Financial Group, which is seeking greater density in certain stateside markets, is minimizing the idea of using some of its excess capital to acquire another bank.

The Canadian lender is determined to grow its U.S. business organically, a strategy that should help it achieve a key financial performance metric as quickly as possible, and that means using some capital to build new branches in areas where BMO can increase its market share, CEO Darryl White told analysts Thursday during the bank's fourth-quarter earnings call. 

The bank has set out to achieve a return on equity of 12% for its U.S. business within the next three to five years. The U.S. segment, which generated about 37% of BMO's total earnings for the quarter ending Oct. 31, has struggled to capture revenue synergies in the timeframe that had been expected following its acquisition of Bank of the West in early 2023.

Some analysts pressed White on Thursday to explain why BMO is prioritizing organic growth over an acquisition, given that U.S. regulators have eased the process of approving M&A deals.

"We have a really good strategy … in terms of making sure we have the highest probability of climbing up that [return on equity] curve as fast as possible in the U.S.," White responded. "If something comes along that fits in the tuck-in category, where we can accelerate [ROE] and not slow it down, yeah, we'll have a good look. Otherwise, we've got other things to do."

BMO isn't alone among Canadian banks when it comes to pursuing organic growth in the U.S. over M&A. 

On Wednesday, Royal Bank of Canada CEO Dave McKay also downplayed interest in striking a deal south of the border, saying that it remains "an option, but buying back shares right now and returning capital to shareholders and accelerating organic growth remains a priority."

Similarly, on Tuesday, Bank of Nova Scotia CEO L. Scott Thomson told analysts that the company is largely focused on organic growth opportunities in the U.S., though it would be open to considering "relatively small tuck-ins," possibly related to the wealth business. 

BMO, one of the largest banks in Canada, spent much of 2025 reconfiguring its U.S. business. 

In May, it said it was selling off certain transactional, lower-returning loan portfolios and shifting away from higher-cost deposits as part of the effort to boost its U.S. profitability. The balance sheet restructuring included the sale of a U.S. credit card portfolio and the exit from a franchise loan portfolio that didn't live up to BMO's profitability expectations.

In July, former Bank of America executive Aron Levine joined BMO to oversee U.S. personal and business banking, commercial banking and wealth management, all of which now operate under one umbrella. The company previously reported its U.S. wealth management results under a different segment.

In August, the bank unveiled loose plans to invest in talent, technology and its U.S. branch footprint. Two months later, it announced a plan to sell 138 branches in underperforming markets to First Citizens BancShares in Raleigh, North Carolina, and to open 150 new branches in U.S. markets where it can achieve greater density and critical mass, including parts of California.

In total, BMO's U.S. operations generated $582 million of net income during the most recent quarter, more than double the $210 million reported for the year-ago quarter. The unit's return on equity was 8.5% as of Oct. 31, or 9.2% excluding certain acquisition charges and other costs. That was an improvement from the year-ago quarter when U.S. ROE was 3.1%.

Like many banks, BMO currently has excess capital. Its common equity Tier 1 ratio at the end of October was 13.3%, well above its 12.5% target. 

For the full fiscal year, the bank completed the repurchase of 22.2 million shares, and it expects to keep buying back stock in 2026, Tayfun Tuzun, BMO's chief financial officer, said on the call.