National Post (Latest Edition)
CO VID fallout leaves business in limbo: BMO
‘Suspended animation’ says CEO
TORONTO • The chief executive of the Bank of Montreal said Wednesday that businesses are in something like a state of “suspended animation,” as the ongoing coronavirus pandemic is making firms cautious now, but could provide Canada’s fourth- largest lender with an opportunity later.
BMO CEO Darryl White said the coming year or so could look similar to a “pause” the bank’s clients in the United States took in 2017, during which they held off on things such as acquisitions or investments while they awaited details of U. S. President Donald Trump’s promised corporate tax cut.
There was then a “release” once those plans became clear, White added.
“My own view is, for very different reasons naturally, we’re kind of in that suspended animation right now,” the BMO CEO said in response to an analyst’s question during an investor event. “The loan demand, as you all know, as you’ve seen across the industry, has tapered off. I expect that will continue for some time as we go through the uncertain phase. But when the business owner decides that there is more clarity, there is more stability, they do move quickly.”
A pause by businesses would come as the economic recovery from the effects of COVID-19 has been slowing of late and as a second wave of the virus has materialized in some places, raising the prospect of another round of government restrictions.
And while support programs have been crucial to keeping businesses and workers afloat during the pandemic, those programs are intended to be temporary, and are stretching the finances of governments.
The online event at which White’s comments came highlighted BMO’S commercial banking operations in Canada and the United States, which provide deposit accounts and loans for businesses, as well as various other products and services. BMO’S North American commercial banking arm accounts for around 30 per cent of the lender’s revenues, White said, in addition to providing referrals to other parts of the bank, such as its capital-markets unit.
“The business recovery will come, and when it does come, we see real opportunities in this business,” White said in response to another analyst question.
BMO — which owns Chicago- based BMO Harris Bank — views its North American commercial banking business as something that sets it apart from other lenders. The bank is eyeing growth of the commercial business in certain sectors, such as Canadian tech, as well as targeting additional market share in certain areas, such as in Texas.
Dave Casper, head of North American commercial banking at BMO, said their discussions with clients are suggesting a faster-than-anticipated recovery. He also said the bank sees itself as having backed more “winners,” and that winners can sense opportunity.
“They’re pulling back, they’re laying off people, they’re managing their expenses, and they’re ready to pounce on less- disciplined competitors,” Casper said. “So I see, as this thing turns around, they will be opportunistic, as we will to bank the winners, grow the business.”
Canada’s Big Six banks saw their commercial and corporate loan portfolios shrink eight per cent for the three months ended July 31 compared to the previous quarter, as clients paid down lines of credit or tapped stock and bond markets for financing, credit-rating agency DBRS Morningstar said in a September report.
So while BMO management likened its commercial customers to “coiled springs,” according to National Bank Financial analyst Gabriel Dechaine, “these same customers are cutting expenses and capital expenditures in order to weather the downturn, indicating that credit demand is far from normal conditions.”
BMO’S commercial lending may have helped profits, but the lender has had to defend the strategy in the face of a COVIDcaused recession that has hammered a number of businesses.
Like other banks during the pandemic, BMO has offered loan- payment deferrals to clients, affecting 13 per cent of its commercial loan portfolio. Around five per cent are still being deferred, BMO says. Moreover, the lender says only about 1.7 per cent of loans on which deferrals have ended are delinquent or in default as of mid-september.
“Our greater weighting to business lending is by design,” said Pat Cronin, the bank’s chief risk officer. “And that’s founded on our experience that business lending has lower loan- loss rates than consumer lending over long periods of time.”