Bank of Montreal Barclays 24th Annual Global Financial Services Conference

All right, great. Thanks. For our next presentation, we have Bank of Montreal. Coming from Bank of Montreal, we have their Chief Financial Officer, Rahul Nalgirkar. Welcome, Rahul. Thank you. Maybe let's get started on the macro.

Can you give us an update on the economic environment in Canada, especially in light of recent tariff negotiations and the ongoing investment summit. You also have a unique perspective on this subject with large commercial businesses on both sides of the border.

Sure. First of all, thanks for having us, and thanks for hosting us here. As we think about Canada and U.S., it's been a long-standing relationship and partnership which lives over decades. That's what's made the North America a pretty strong economy as well in general, if you think about it. While there may have been some uncertainties with the recent trade discussions, I'm optimistic as we look beyond where things would proceed with this. If you think just near terms, you asked, what is it looking like. Clearly, there's a lot of discussion on demand. There's continued demand. Loan closings this year are almost double of what it was last year, coming out of a lot of slow 2025. Pipelines are strong. Conversations are strong. I think what clients are looking for is that little bit added confidence towards the end as the negotiations find closure.

As you think about BMO being a top five commercial bank in North America, we're very strategically positioned to help clients in their needs, whether it's cross-border, whether it's supply chain, whether it's export. I think that's where we've been focused on how do you help the clients proactively and also use this as an opportunity to, in fact, acquire new clients on both sides of the border.

Great. I think if you look at recent earnings in Q3, demonstrated double digits year-over-year growth in revenue, PPPT, net income, EPS. Any other key takeaways from earnings you'd like to highlight for investors? How are these trends shaping up for 2027?

Sure. Third quarter was another strong quarter for us, and the results demonstrate the continued progress and execution which we have been doing on our path, which we laid out at Investor Day. If you see seven quarters in a row, when we started this journey in the end of 2024 at ROE of 9.8%, now we finished at 14%, almost up 220 basis points so far this year, and it's been broad-based. It's not just coming from one particular unit. All the four unit sub-segments for us are contributing 50, 60 basis points each of this expansion of 220 basis points we've had this year. So broad-based and also largely coming from core operating performance. We've seen strong performance in revenue was up 11%. PPPT was up 13% and record at CAD 4.5 billion.

All four of our units printed record PPPT. ROE of 14%, ROTCE of 18%, and EPS growth of 22%. So feel very good about what these results demonstrate, the results of our execution. That gives us the confidence as we think about the next phase of the journey towards 15% exiting 2027.

Okay. Throughout 2026, Bank of Montreal has made steady progress towards reaching its 15%+ ROE target, inclusive of a 12% U.S. banking ROE, with 3Q generating 14% overall and 9.8% in the U.S. Can you discuss some of the drivers for that ROE expansion? How much is structural improvement versus cyclical market conditions? Can you update us on the timeline to achieving your return targets?

Sure. A part of this is also related to my previous response, where a lot of this growth, majority of the improvement is all coming from core operating performance, and it is broad based. Where we have come along within core operating performance includes the improvement in returns of our U.S. business. It also includes broad-based growth of our Capital Markets, Canadian Wealth, and Canadian Personal business as well. As we think about the remainder of the journey from here onwards to the 15% target which we have, I think about 50%, 60% comes back from core operating performance, continued strength in the P&C businesses on both sides of the border, and the strength which has been demonstrated both in Wealth and Capital Markets. The remainder portion we expect as credit normalizes, as we continue to optimize our capital, the remainder to come from that.

It is a combination of largely dependent on core operating performance from fees, from deposits, as we better squeeze the CAD dollar of capital for more fees and deposits. That is how we look at it.

Great. Maybe drilling down into the U.S. banking business. Now that the bank has optimized the loan portfolio and divested certain businesses, where are the areas resources will be redeployed, and how are you positioning for growth opportunities going forward?

Sure. Listen, we're very pleased with the progress which our U.S. banking has shown so far. ROE of 9.8%. I think the one thing I would point out is that's ROTCE of 17.3%. That's important to note on return on marginal capital. That's 9 basis points of ROE improvement year-over-year. These results demonstrate the impact of our deliberate actions. We deliberately, five, six quarters ago, unified the operating structure to bring all the business together under one umbrella. There's been very strong core operating deposit growth. TPS fees have grown about 14% year-over-year. Strong operating leverage. Capital has been optimized as we looked at businesses which didn't meet our risk-adjusted return expectations. PCLs have normalized, and we have had significant upgrade in talent and reinvestment in tech across the board.

It's a very all-rounded story in terms of what these results reflect in terms of these deliberate actions. As we look forward from where they are at around 10% to the remainder of 12%, I broadly think about the remainder of the journey as almost a third, a third, a third. As I say, coming from fees, a third coming from deposits, and a third coming from all other actions, including cost and capital, as we continue to invest and allocate capital to relationships and businesses which meet our risk-adjusted returns through the cycle, and also our growth expectations through the cycle. That's how we've been very deliberate in our capital optimization and our liquidity optimization, and also mix expense.

Great. Another major factor in the ROE expansion story has been continued strength in capital markets.