EUR 850.00 For Business Accounts Only

Morningstar | BMO is focused on expanding its commercial lending book and achieving positive operating leverage.

Bank of Montreal, or BMO, is the fourth-largest bank in Canada, and is one of six Canadian banks that collectively hold almost 90% of the nation's banking deposits. The bank derives roughly 70% of its revenue from Canada and nearly 25% from the United States. BMO has a well-established Canadian banking presence, an established U.S. retail operation in the Midwest, and growing commercial and capital markets capabilities. It is also the second-largest asset manager among the Canadian banks as well as the second-largest ETF provider in Canada.BMO is not one of the largest or dominant retail banks in Canada, as we rank it in the lower half of the Big Six. However, with its more commercially focused book, it boasts good share within its domestic commercial lending market, at number two for loans under 25 million. Additionally, BMO has the lowest relative exposure to residential mortgage loans among its peers, helping to mitigate some of the risks within its loan book, although a true housing crisis could cause a recession and hurt commercial loans indirectly.Over the past several years, BMO has been building its commercial lending strength in the U.S. with high-single-digit loan growth rates expected. We also expect the reduction of the U.S. indirect auto portfolio and the purchase of the transportation finance business from General Electric to boost margins. In general, we like BMO’s presence in the U.S., as it has built up respectable deposit market share numbers and has avoided some of the mistakes other Canadian banks have made in attempts to expand south.BMO has the second-largest amount of assets under management among the Canadian banks, with the largest proportion of its revenue coming from wealth-management fees among peers. We like the growth and results the bank has achieved here, but this segment could come under pressure in the medium term. Competing against BlackRock (which already has nearly 50% of the Canadian ETF market) in ETFs will only get tougher, although we do expect passive to grow strongly in Canada, supporting future growth for BMO.