Bank of Montreal Scotiabank’s 27th Annual Financials Summit

How are you? Thank you.

I'm very well. How are you?

Yeah, I guess it is a good place to start, Mike, and thanks for the question. Thanks for hosting. I think the punchline is we are 80% of the way there and 60% of the time, right? If you go back to when we called our shot at the end of 2024, we were running at 10% ROE. We said it is going to be 15. We did not say by when. At a conference at one of your competitors earlier this year, I said it would be timestamped by the end of 2027. We were running a little over 11 then. We are at 14 today. The teams have done an excellent job responding to the challenge as our number one imperative. I have been fond of saying I declared war on the ROE, and we are actually winning the war, and we are winning it for the benefit of shareholders.

If you put it together with, Mike, the commitments that we have made at our Investor Day where we said it was about the both, not just driving the ROE, but accelerating the returns while we accelerate the growth. I am very proud of what the teams have done. In that same seven quarters that I have just talked about, if we look at those quarters in their entirety, our bank relative to our peers is at the number one rate of accretion to ROE and the number one rate of EPS growth. And that is important because you can make decisions that do too much, as you know well in your models, but in reality, to trade off one for the other, and we are holding ourselves accountable for doing both at the same time.

I guess last point on the ROE rebuild, and this is something that gives me a lot of confidence that we will hit the destination that we have put out there on time, is when you decompose where it is coming from, there may be a little bit of a myth that it sort of all comes from the fee businesses, wealth, and capital markets. When you look at, for example, let us use this year to date, we are up 220 basis points on the ROE year to date. And when I look at the decomposition of where that has come from by line of business, get this, it is 50 basis points Canadian P&C. Sorry, 50 basis points from Canadian P&C, 60 from U.S. banking, 80 from Capital Markets, and 40 from wealth. So wealth and Capital Markets are 120 basis points. They are about half of the contribution.

The P&C businesses, north and south, are about half of the contribution. It is very equally distributed in terms of the challenges we have put in delivering all of the businesses against that. And when we had record PPPT for all four businesses in the third quarter, it is kind of evidence as we are driving that, not just with our PCL improvement, but also with the core business performance. Look, it is a good story. It is a very important one for us, and the teams have done really well delivering it.

As I mentioned a moment ago, it's very broad-based where we're seeing the improvements coming from. So we're not relying on one-trick ponies to get ourselves there. When I look at the composition of businesses in the portfolio, there are different roles that they play. The U.S. business, for example, in U.S. banking, we started this journey at a sub 7% ROE. We're at 9.8% today, which by the way is 17.3% on the ROTCE. We think tangible is a very important comparison in the United States. When we get to 12 in the U.S. on the ROE, that gets me to 18, 19 on the ROTCE. That's best in class, or at least it's in the top quartile, which I should say about among our peer set in the United States.

Then I'm at a point where I've got pretty close to indifferent capital allocation decisions from a return perspective. Then you can therefore say, "Where can I get that magic combination of good return and high growth?" We've got really good optionality in the portfolio of businesses that we've built. Look, over the course of time, across the portfolio of businesses, there will be variations in terms of how they perform, but the diversification at BMO, both by line of business and by geography, give us a lot of optionality in terms of when one thing softens, another can pick up. We've seen that in living color, actually, in the last three or four quarters, and it's benefited us well. Last point, the capital is absolutely there to feed all of the above, and I heard somebody using that reference earlier.

Remember, our 13% CET1 published ratio is really 13.5 pro forma the divestitures that we've announced. One of them closed on Friday. The next two we're expecting to close in the next couple few months. So 13.5 going into 2027 fiscal gives us a lot of flexibility to drive all of that.