All right. Great. Thank you. All right, we'll start the session here. Thank you for joining us, everyone. It's always a pleasure to have David Casper from BMO to join us today. I've known Dave for a long time, so we've had some great conversations over the years. Looking forward to this conversation in particular. He's not a CFO, as you can all tell. He is here-
Is that obvious?
He's here to talk about the U.S. business and, great timing, given the recent acquisition, the close of the acquisition. Dave, why don't we just maybe start with a very high level first impressions kind of question with respect to Bank of the West.
Sure. Thanks, Darko. Well, first impressions are very similar. We made the announcement, it seemed like decades ago, December of 2021. We closed in February of 2023. First impressions are very similar to what we thought from the beginning. Good franchise with lots of potential to grow. The one thing about having it take as long as it did, and it hasn't taken as long as it has or will for others, but it's still took us 13 months. It gives us a little bit more time to kinda think through all the things we're gonna do from the synergy side, both the revenue synergy side and the cost synergy. On the cost synergy, we're in great shape. We said we would do $670 million of cost savings.
We said we'd get those out in the first year from the time we start. We're on board for that, and we've got a very good disciplined plan to do that. On the actually converting, which we convert at Labor Day, seven months from now, roughly, we're in very good shape there. The good news about that, Darko, is almost all the systems are gonna be BMO systems. Bank of the West had good systems, but we don't need two. It's basically a lift and shift. There's a lot of work to be done to make sure from a client standpoint, that works both on the retail side as well as the commercial and wealth side, but we're in very good shape there.
On the revenues, which we've said early on, we said it could be CAD 450 million-CAD 550 million, I think, net of some expenses over the next 5 years. That's where our teams have spent an awful lot of time. We can bifurcate that a little bit. We have people that are working in writing the code. I'm not one of those. We got people that are thinking about how do we grow these businesses, commercial, capital markets, retail, wealth. All of those businesses have teams in place, Bank of the West and BMO. We call them out BMO Green and BMO Blue because they were green until we merged. They're working through these synergies, and they are real synergies. Commercial.
The fact that we're now taking what we think is a very good U.S. commercial platform and having now the 5th-largest economy in the world that we can tap into. There's excitement there that I haven't seen before, and it's the Bank of the West people as well as the BMO people that feel, "Hey, now we can take to our clients much more than we could have before on the commercial side." Remember, Bank of the West was a good bank, but they were owned by BNP, good bank, but it was 5% of their net income in the U.S. They weren't investing the way we will, where we'll have 45% of our net income now in the U.S.
building out verticals, whether it's our asset-based lending business, our sponsor business, our transportation finance business, our dealer finance business, taking that to the West Coast is big. Just the overall diversified commercial market out there, we'll compete with the best banks in the United States. we have a platform that has actually done quite well against those banks and the smaller banks. I feel really excited about that. Our ability to capture wealth business with our commercial clients has been strong. It has been in the past. Same with capital markets, and now we'll have technology and healthcare, which is a bigger space for Bank of the West, frankly, than it was for us. It's an area that we clearly want to grow in. Dan Barclay's capital markets team's already out there trying to grow that.
At the end of the day, and then obviously our retail business. We go from 500 branches to 1,000 branches. We're probably BMO's a little bit more digitally advanced than Bank of the West was, but having those branches, having the digital capabilities we have, Ernie's very excited about that, and so is her team. Across all the businesses, I feel really good about the synergies and just to kind of capstone it, and I'm sure, and Darryl made this point on our call, but it's not, it's definitely worth repeating. As we look out, we get through the cost synergies this in the next 12 months. We take the business they have, which was about $1 billion of pre-tax, pre-provision. That's their core business.
Add in the $670 million, almost $700 million of cost synergies, and take kind of the low end of the revenue synergies, which we think will be much higher. By the end of 2025, as we go into fiscal 26, that's $2 billion U.S. of pre-tax, pre-provision. We haven't seen the number of that yet. We haven't seen a dollar of that because we closed February 1st. That's what we're excited about. We think it could be better than that. We think the revenue synergies are the real positive, and that's over the long term. We have a good record, then I'll stop. We have a good record of making smart acquisitions at the right time, whether it was M&I in the U.S., our transportation finance business, and then growing on it. We have probably 60% of our growth in the U.S. has been organic. 40% has been acquisitions that we built on. I think this will be another one like that.
Great.
That's a long-winded answer.
no. You know what? We're gonna dive into it more. I mean, how are the early discussions going with the employees?
Yeah.
I know you run commercial, which, you know, I mean, there's a change there too, by the way. We could touch on that management change. You've been running it for a long time now. You inherited a lot of commercial bankers.
Yeah.
What are the early discussions like? What's the early, you know, what's the early read through?
We, it's really positive. By the way, they did not start February first. They started, you know, we were allowed to talk to them, we kinda gave them a day. We closed on December 20th. We had before the holidays in 2021, we had an all-hands-on meeting where we spent time with them. Obviously, we did with our due diligence as well. The attitude is, frankly, much better than I thought, and I had high expectations because they have a good culture. You asked specifically about the commercial teams. The commercial teams have been there for a long time. I think in a way, maybe they were a little frustrated just because they couldn't get the investment.
Again, it's not a knock on BNP, but if it's 5% of your business, you're not gonna pour huge amounts of money into the U.S. of investment. We have, and so they have that. The commercial bankers that we generally have think a lot about who they're working for, but they think about how they can sell to their clients. I mean, that's what they're there for. That's what they like to do. They feel they have a lot more now to offer. They can compete against any of the big four banks that are there, and then a lot of the smaller banks. I think they feel very good, whether it's mid-market M&A, industry specialties that they didn't have before.
A focus from our capital markets business, which is more mid-market, mid-cap than BNP's would have been, so they could focus on those types of clients. I think they're very excited. We've already had, you know, been in this few weeks. We've already had successes. Clients that have come to us through Bank of the West using our capital markets, using our treasury, you know, our swaps caps, our rates business. That's all incremental revenue too because that's sat on that business sat on the BNP platform.
That will inure to us. High excitement. That goes across wealth. They didn't really have a capital markets business. That was a BNP, but our retail teams, Ernie's had a number of many meetings, the huddles where they get together, and I think they're just generally excited. Can't wait till September. For retail, you can't do much until you've converted. Obviously, commercial clients and wealth clients, they can come on board right away.
what's the client feedback so far been?
Very positive. We were just out there. We've had, we just had a big ribbon cutting out there. We, as you may have, may not seen, we've now taken over the LAFC, got the huge signs on the L.A. freeway. That happened one day after we got approval. We were hiding those signs. Couldn't put them up until approval. Clients have been out there. They were there for the ribbon cutting. Magic Johnson was there. It's, they're excited. The clients obviously have known for a while that this was gonna happen, but they see opportunities that, I don't think they saw before. They want options. I honestly think this is better than what I thought it would be, and a lot. We have to prove it up, but I think the signs are all really positive.
so when I think of, in many cases in acquisitions, you know, the acquired, employees look around and they say, "Well, you know, what does BMO offer-
Yeah
-that I couldn't offer before?" I wanted to dive into a little bit of it. Sometimes it's bigger limits, right? Maybe. Oftentimes, it's product capabilities. I know one of the products that you were quite happy with or building out was cash management in the U.S. Maybe you can just give us what are, what were some of the product gaps?
Yeah
that are now closing and really provide you with the biggest opportunity?
Well, let's take a first of the treasury management system is probably the biggest. They had a good system. They had actually converted recently. That was something you worry about too because anytime your commercial client has to change...
Right
they have an option to think about other places. We early on. Our treasury management system is north-south. A client in Canada or a client in the U.S. uses the exact same system. They consolidate their cash there, it's collected, they disperse, and it's the same reporting on both sides. We've been able to invest there already in a much larger scale than Bank of the West ever has. We've done, within the last five months, we did demonstrations of their treasury management system up against the BMO treasury management system, and we brought in their experts. The relationship managers knew something, but their treasury management salespeople know, you know, exact questions to ask. They were literally overwhelmed. They said, "Wow. We knew it was good.
We didn't expect it was this good." It had a lot of features that they were going to put on, you know, two or three years from now, but just hadn't got along to. On the other side of that too, there's something we get. We now have access to BNP's European treasury management. We, we would still use our system, but we would tap into theirs.
Right.
That's good for the Bank of the West customers. They keep it. It's great for our clients. Canada and the U.S., now we have that to sell. On the other hand, they being BNP, have huge number of international clients that would have maybe used Bank of the West in, like, California. Now we can sell and get that revenue for us, for Canada and for the U.S., for European clients that have businesses in the United States and Canada because we have so many clients. You follow that? Our clients, our businesses will be able to make revenue for the BNP client that comes over here, and now they can access our system. It works both ways. Other product gaps, I mean, we have a huge asset-based lending business.
They were always frustrated at Bank of the West because if somebody was a commercial client that moved to asset-based lending, they didn't have it. We're the fifth largest asset-based lender in North America. They now have that. Equipment finance. We have a much bigger equipment finance business, which is a big business to have, and it's important to have that, particularly as clients are thinking about capital expenditures. Lots of products that they didn't have before that they would lose to some of the big banks. Last one that's it's turned out to be much more... I knew it would be big, but they have been, and they've already had our mid-market M&A teams out talking to their clients. They never had that before.
You know, if they were going to call BNP, you know, they were not gonna be interested in a $200 million enterprise value company. We've got that. We have interest in that. We grow that. That's a big business for us, and it continues to grow, and we connect that with our commercial clients. You hit it on the head. The commercial banker wants to be able to tell his client, "Hey, this is gonna be good for you." When she goes out to the market and she talks to her clients, she tells a pretty good story, and we're educating them as we speak.
That's a good overview. Thank you for that. Very, very appreciative. Now just turning back to the cost synergies real quick.
Yeah.
We've got the Labor Day conversion. Not much happens on that front, retail-wise, until you can get past that.
A lot happens that weekend.
Right.
Yeah.
For sure. Absolutely. Predominantly going to the BMO system. For one of the things that we did notice is that, you know, there's a slight uptick to the cost for integration.
Yeah.
built in. Was that based on just because you squeezed the timeline a little bit because of the length or what was?
No, no. I think, it was just when we reported it because it was kind of coming together as we pulled together. We went from CAD 1.3-CAD 1.5. Other banks have had kind of similar increases as they get into it. It wasn't anything material. It's, you know, everything costs a little bit more, as it turns out, from December 2021. Obviously those are one-time costs, but, you know, and that includes signs, it includes everything we do, including, and this is something you talked about before, and I didn't really touch on, with retention. We wanted to make sure that our bankers would stay, so there's a little extra in there for retention, and they got sure that they stay, which is money well spent.
Okay.
Do you want to talk about the cost side as well, though?
Yeah.
$670? We feel really good about that. That works out. The $670 is roughly 35% of their costs in 2021. It's a lot of overhead. It's systems. It's getting out of systems that we don't need anymore. It's suppliers, it's mid-level overhead of people as well. That's tricky because you wanna make sure that you don't save the $670, but then it shows up somewhere else. I've seen that before.
Have I.
Yeah.
There's a lot of fungibility around some of these things.
That's why, I mean, that's why Darryl and Tayfun and myself have been very clear, this is the number. We have a very good tracking system. Everyone knows what their targets are. They know whether it's real estate, 'cause there'll be savings just in real estate. We're not closing any branches, but we don't need as much office space as they had before. But it's that, it's dealing with suppliers, it's people, but everybody knows exactly. It's down to the line of business, who's got what. I am probably very confident about the revenue synergies. They take a little bit longer to get there. We'll have those 670 synergies out by this time next year. When you look at all of fiscal 2024, you'll have 95% of it out.
Oh, I gotta change. I think I have 100% in my model.
No, we had 100%. It's 100% that's out.
Right.
For all of 2024, you only see 94% of it because we're not gonna get it till February.
Yeah, fair.
It will be, you know, February second, that run rate will be 100%, or Tayfun will have my throat and I'll have somebody's. No, that part I'm not worried about. I'm really not. I don't think it's not gonna show up somewhere else. We've got the guardrails to make sure that doesn't happen.
Well, I kinda like the pre-tax, pre-provision...
Yeah.
numbers as well. I mean, those $2 billion.
$2 billion.
The $2 billion. Yeah. Right. That's very helpful. One of the things I wanted to talk about was the high growth rates that we've seen in commercial lending...
Yeah.
out of the U.S. for quite some time. Now should we expect some sort of a pause here as you're kind of working? 'Cause you've got a new run rate, you've brought in, what was it, $50 billion of loans.
Yeah.
Does that necessitate a bit of a pause in the run rate of growth?
No, I would not say pause. Definitely would not say pause. Are you talking specifically about the U.S.?
Specifically about the U.S.
Yeah. No, our U.S. teams continue to work very hard on new client acquisition. One of the offsets of, you know, with everybody having, you know, higher capital standards. We focus very much on ROE. It turns out we wouldn't bring in, especially today, anything that wasn't accretive to our ROE. As long as we're doing that, we know we have the capital to do that. Put Bank of the West aside, I'll come back to them in a minute. As long as we are still, and I think we do a good job of this, peeling out anything that turns out not to be a good ROE. Those would be generally clients that maybe we've taken on that we thought we were gonna get something and didn't.
You know, 90% of our clients in the U.S., and same in Canada, we're either the sole bank or the lead. If you turn out to be the lead bank or you're not, if you're in that 10% and you don't have a chance of getting there, because when you have that, you get more of the treasury management, more in the wealth, more of the capital markets, you know that story. We'll peel those off. That gives us a little room at the bottom end. Let something go. There's no pause. There will be, and I think we've said, put Bank of the West aside again, there'll be a slowdown in terms of our growth. We've said, I think we had earlier said high, high single digits. I think we're now, I kind of feel it's more mid to high.
When you add the Bank of the West, they have a good client base. We want to make sure, particularly because of the revenues opportunities that we see, that we have plenty of capital for the good opportunities there. That doesn't mean taking, you know, 25% more in a deal where we're not going to be the lead or the sole. It means going after a lot of their prospective clients, where we have much better opportunity than they would or we would have on our own. Now we go out there, 4th largest bank and 4th largest commercial bank in North America. Go out to what was Bank of the West, you know, 7th largest in California, we talk about what we can do. Now all of a sudden, they have a very credible story to tell.
Their bankers and some of ours, because we had some people out there and we'll have more going out and trying to grow that franchise. We don't want to give up any growth opportunities on the West Coast. If we had to slow down in Texas for a little while, I'd do that in a minute. You know, we want to make sure we don't, you know, grow beyond our capital base, but we've got plenty of capital for the good opportunities. We really do. I don't like that word pause, you know, but I definitely want to be disciplined as we have been.
I mean, we've had a really good growth in the U.S. over a long period of time, and any analyst that's followed us would not be doing their job if they didn't say, "Well, wait a minute. All that growth, you must be taking on a lot of risk." I think we have proven that we've done a really good job on the client acquisition, so we haven't had, you know, growth spurt and then a huge PCL. That's the same way with Bank of the West. They have a very good credit culture, I think, similar as we do.
I don't want to get into too much of a modeling exercise with you on Bank of the West being slammed together with your bank.
Slammed?
Gently combined. One of the things that, you know, you look at is we're seeing margins have been expanding. Net interest margins have been expanding. Bank of the West comes with a different margin.
Yep.
higher than overall BMO group, but lower than your-.
Yeah.
Segmented business. Can you talk a little bit about what's behind that and sort of how we should even think about the margin going forward?
Yeah. Well, I think you've hit the main point is it's accretive to BMO.
Right.
Which is, you know, we don't get too worried about the individual business units on the NIM, it's accretive to BMO, I think 10 basis points, Tayfun has said this year. That's good. Their NIM is actually, as you said, lower than the P&C US NIM, which is our personal and commercial business, it's lower by, I don't know, 20-25 basis points. Maybe a little bit more, it's still strong and it's positive. Ours is probably higher a little bit. We have a little bit more commercial in the US P&C business. We're probably 75, 25 commercial. They would be more in terms of loans in the US P&C. Pardon me.
Go ahead.
Yeah. They would be maybe 60/40. I think the commercial business tends to be a little bit higher NIM. They also, in their retail business, which is bigger than ours, they would have more fixed rates, because they have one of their businesses that they have, Darko, which is business we don't have, is RV and marine financing. They finance when somebody shows up at a RV or marine dealer, Bank of the West would be among the top 3 lenders to that space, and they've been in it a long time. Those are fixed rate loans. Right now they might not have the same margins. Make sense? That would be. I don't think there's anything fundamental about how they run their commercial or retail business. It's probably more of a mix. They just have a little bit more. Does that help?
I guess, yeah. Where I was going with it is I kinda understood, and I've had great discussions with you and Tayfun about, you know, the NIM progression and w hat I don't know is what the NIM progression should look like for Bank of the West.
Well, I don't see the gap between what they have now and what the US P&C have is necessarily changing much other than maybe the mix. I don't think from a competitive standpoint, if you're trying to model out what it looks like going forward.
Thinking about the trajectory of NIM.
Yeah.
Will it expand?
So-
Which NIM will expand more? Your, base?
That's a good question. I honestly don't know. I don't see any reason why they wouldn't kind of move in the same direction.
Okay.
Pretty much. you know, we had a great NIM expansion in the US P&C year-over-year. It's slowing down, and it, you know, I think as Tayfun has signaled, it's, you know, we're not gonna get another year like we did last year. It's become more competitive. I don't see that there's one business or the other. Really, you know, and to be honest with you, we're combining these now. We're gonna run everything the same way. We're not gonna have different pricing structures for what was Bank of the West and BMO. It's all, you know, we're all kind of running this. There might be geographic differences, but we're running it as one business, and we're doing that as we speak. That help in-
Yeah, no, it does. One thing I wanted to touch on was, I mean, one of the things that this conference has been a bit topical has been deposit betas.
Yeah
... and the change there. In some instances, they pointed to cash management.
Yeah
...because of the movement in rates. Can you speak to that? Is there a lot of pressure that you see coming from?
Yeah. Well, there's certainly more now and in the U.S. specifically, as I think Tayfun has probably said. You know, during, in the last 18 months, I mean, we had more liquidity than we ever had. You know, after the pandemic it stayed, and it stayed a lot longer than we thought. There wasn't the huge pressure to, you know, jump in and be the most competitive bank for a long period of time. That obviously is changing now. Betas are moving both commercial and retail at a decent pace. An advantage we have or anybody that has a good stable deposit base, which we have in the U.S. and we will inherit or have inherited with Bank of the West, is, you don't have to be the last you don't have to hit the last dollar necessarily.
We've got a really good stable base. I expect though the betas will continue to go up. I think looks like rates are gonna continue to go up as well, that will, you know, for a while, you know, help us. I don't see in the near term any big declines which could cause things to move the other way. Big declines in terms of what the Fed does.
Right.
I think we're still in a good spot, not growing at nearly the pace it was, but also not giving up that margin that we have today. I don't see that going down. Last thing I will say, which kind of goes back to the treasury management on the commercial side. When you are the sole or you're the bank, these clients, you know, they have to leave the business with you because the money's flowing into the bank every day. That doesn't mean we're gonna keep every dollar of excess that they have, but it gives us more opportunity to be, you know, reasonably competitive, but not the last dollar because we are their concentrations bank. Again, you can't take advantage of anybody, but you don't always... You've got that core stable deposit base that, you know, some banks have and some don't have as well. That definitely helps us.
I'm going to pause here and look out to the audience and see if there's anybody here who has a question before I move on to one of our favorite topics, which is credit quality. Anybody have?
Normally, we would start with that.
Isn't it strange? Where are we today with. Let's chat a little bit on credit quality. What are you seeing? I mean, we're obviously seeing, you know, there's some level of formations.
Yeah
Nobody's seeing any trends, but we have constant concerns over commercial real estate.
Yeah.
What are you seeing on the ground?
Well, you should. I mean, I think that will be the area, and I'm talking not necessarily BMO at this point, but industries, industry-wide, large exposures in commercial real estate tend to be problematic, particularly in office and now in retail. The good news for us is that we're not overexposed at all in office. I joke our 2 biggest office exposures in the U.S. are the 2 big buildings that we are the main tenant in. I don't feel too bad about that. I think we'll be good. The problem with office, and it's happening in Chicago, it's happening in San Francisco, it's happening anywhere, certainly New York. These Class B buildings, they will slowly leave. The tenants will slowly leave. They won't need as much space, but they'll take better space in the Class A buildings.
We feel good about our office exposure. We feel good about our overall real estate exposure. I think that's gonna be an issue, but I don't really see it as a big issue for us. The rest of the, you know, the markets you worry about, any company that's highly sensitive to interest rates, you worry about. That's not a big concern right now because most of the underwriting that takes place, certainly at our bank, underwrites at a much higher, including real estate, a much higher rate level than what we would've had two or three years ago. You know it's gonna go up at some point. It's just like the recession. You know it's gonna come. You plan for it. But I don't think we're in a space, and last point on this.
We've done over 30 years, if you look at the numbers. Our PCLs for BMO versus the Canadian banks are materially better. I actually don't think it's because we take less risk. I think we just take it in areas where we feel really comfortable that, you know, we know it and understand it. But that's factual over a long period of time. We have a really strong PCL record, and that's largely because of client acquisition, I think, over the long term.
Dave, I think we've hit the.
The red zero.
The red zero here.
It's been a pleasure. Thank you.
As always, Dave, thank you very much for.
Thank you.
-joining me today.
Thank you.
Thank you.