- Key insight: BMO Financial Group has rounded the corner on its U.S. business revamp and now is positioned to deliver sustained growth and improved returns, a top executive told American Banker.
- What's at stake: The Toronto-based bank ran into challenges following a large stateside acquisition in early 2023. For the past 18 months, it has been trying to improve its performance.
- Forward look: The bank expects to deliver on its U.S. return on equity target of 12% by Oct. 31, 2027.
Over the past 18 months, the Canadian bank has sold off certain lower-returning loan portfolios, reorganized its U.S. leadership team and divested 138 branches in slow-growth markets, mostly in the Midwest and Great Plains. While still having a stronghold in states such as Illinois, BMO has
BMO executives have said the U.S. is a critical component of the bank's overall growth story. In a recent interview, Aron Levine, BMO's U.S. president, pointed to three key areas as evidence that the business revamp is working: the bank's latest return on equity in the U.S., which rose to 9.2% during the bank's third quarter; an improved efficiency ratio; and commercial loan growth.
Bringing BMO's U.S. businesses — personal and business banking, commercial banking and wealth management — under one unified management team made a difference, Levine told American Banker.
"That unified structure has paid dividends in terms of being successful and delivering for our clients," Levine said. "We're making good progress on the things we said we'd deliver on."
BMO has a long history of doing business south of the border. In 1984, it acquired Harris Bancorp in Chicago. Twenty-seven years later, it
The Wisconsin deal more than doubled the number of BMO's U.S. branch locations. It came about a year after
In late 2021, BMO
After BMO closed the transaction, it hit some unexpected challenges, including in commercial lending, since the higher interest-rate environment was dampening loan demand.
BMO also didn't capture the deal's projected revenue synergies as quickly as it had anticipated. During the bank's fourth quarter of 2023, net revenue was down 25% year over year, expenses were up 19% from the year-ago period, and the efficiency ratio had risen sharply to 69.4%.
Executives started looking for ways to improve profitability. BMO's U.S. return on equity had dipped to 3.1% during the fourth quarter of 2024. It has been steadily rising ever since.
Over the next several months, the bank
It also rolled out a new management structure and brought on Levine to
In his current role, Levine sits on BMO's executive committee and is part of its U.S. management group. He reports to Darryl White, CEO of the entire BMO franchise, as well as Darrel Hackett, BMO's U.S. CEO, who's responsible for leadership and performance across the company's U.S. operations.
The bank has set a target of achieving a 12% return on equity in the U.S. by Oct. 31. 2027. In August,
The various changes appear to be working in BMO's favor, according to John Aiken, an analyst at Jefferies who covers Canadian banks. The efficiency ratio is improving, and commercial loan growth, which took a hit as a result of the portfolio restructurings, is resuming, he said. Part of that is due to the fact that the loan portfolio restructuring is complete, and part of it stems from the bank's focus on relationship banking and bringing on new clients.
"We are anticipating an acceleration in loan growth, back to peer average," Aiken said.
The focus on California is also a bright spot, given the state's deep well of deposits and the fact that the Bank of the West deal made BMO more geographically diverse, Aiken said. The bank expects to open six new branches in California in October, and 27 throughout all of 2027.
Read more:
What comes next for banks in a post-CLARITY Congress Warsh: Rising bond yields a sign of strong U.S. economy Borrowing from Federal Home Loan banks jumped 20% in 2Q State bank examiners get a playbook for inspecting AI
One potential challenge could be the broader economy, Aiken warned. If there's a slowdown, loan demand could shrink, and credit quality could take a hit, he said. Additionally, dramatic interest-rate hikes could be a headwind, but more measured increases, including
"BMO is a bit overweight in terms of commercial lending in the U.S., so if we see the business cycle soften, it could potentially take higher credit losses than its peers," Aiken said. "But historically, BMO has been a good adjudicator in credit."
One area where BMO is probably not likely to play right now is bank mergers and acquisitions. During an industry conference this month, White reiterated the bank's focus on organic growth, though he didn't close the door all the way to the possibility of doing a deal if it made sense.
"As far as M&A is concerned, we don't need M&A to satisfy the targets that we've set out," White said. "If something that fits right in our wheelhouse comes along, we'll execute on it."
