Bank of Montreal CEO surpasses U.S. growth target in six months

Bank of Montreal Chief Executive Officer Darryl White said last September that he'd like a third of his bank's earnings to come from the U.S. in three to five years. It was a matter of months before the goal was reached.

Now he expects things to settle down a bit.

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"I wouldn't have put a three-to-five-year target out if I knew we were going to hit it in six months," White, 47, said in an interview Tuesday at the bank's Toronto headquarters. "The level that we're at right now is sustainable, and I think we're going to see the U.S. business continue to grow faster than the rest of the bank -- but not that much faster than the rest of the bank."

White, who became CEO in November 2017, made it his mission to boost the share of earnings from the U.S., where the lender owns Chicago-based BMO Harris Bank and has an investment-banking presence through BMO Capital Markets. White first disclosed specifics of his U.S. target in an interview in September, and reiterated the goal at an Oct. 24 investor event.

At the time, Bank of Montreal, Canada's fourth-largest lender, earned 28% of adjusted earnings from the U.S. -- up from 24% in fiscal 2017, before White took the helm. For the first half of the fiscal year ending Oct. 31, the company generated 35% of adjusted profit from the U.S., according to company disclosures.

Bank of Montreal's U.S. operations benefited from a "substantial" increase in corporate loans and improving credit quality, as well as a market that's been helped by rate increases, U.S. economic growth supported by fiscal stimulus and tight labor markets, White said.

"We were deliberately positioning ourselves into what we saw to be a rising tide, and we took advantage of it," White said. "We'll continue to see an increase in the share of our profits that come from the U.S., but I would say at a much more gradual rate from where we are today."

White said he's encouraged by the mix within the bank's U.S. earnings, with profitable businesses in personal and business banking, commercial lending, capital markets, and wealth and asset management.

"Commercial continued to be the big driver, but the others started to play a more important role in the portfolio as well," he said. "I really like where we are right now, with more than a third of the bank's earnings coming from the U.S. and in particular the diversification of those earnings."

Other comments from the interview:

- On the bank's target of improving its efficiency ratio -- a measure of what it costs to produce a dollar of revenue -- to 58% or better on an adjusted basis by the end of fiscal 2021: "I'm optimistic in getting to that goal," White said. "We're committed to it, we've re-tested ourselves that we're committed to the 58%."

- On the banking environment: "It is pretty clear to me that we're looking at a revenue environment that is OK -- I should be clear, I don't think the sky is falling, and I'm not in the recession camp -- but when I look at the general environment in the next three years relative to the last three years, I think the macro environment will be tougher from a revenue perspective."

- On the bank's goal of C$1 billion in productivity initiatives: "We're ahead of schedule and by the end of this year I expect that we'll be in a position to think about how to grow that number." The efforts involve not only cost-cutting but also streamlining operations and using more technology and automation, he said, and no further job reductions are planned following cuts of about 100 positions in BMO Capital Markets earlier this year.

- On China, where Bank of Montreal has operations in capital markets and trade finance and partnerships with Chinese financial firms: "We're not in a position where we're seeking to go hard at increasing our investment in China, but at the same time we're not looking at reducing our investments," White said, adding that he's planning to travel to the country this summer even with Canada being in a "pretty delicate position" in relations with China. "I think it's important that we're personally present in an environment like this."

- On the prospect of U.S. acquisitions: "Our radar is always on. When people call, we take the call," White said, adding that "we don't have an imperative to grow the bank by M&A" and that internal growth remains the first priority.

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