Bank of Montreal's chief executive says he doesn't need to make another acquisition to meaningfully lift earnings from the U.S.
"If we continue doing the things that we're doing organically, I could see a third of the bank coming from U.S. earnings," Darryl White said Monday in an interview at Bloomberg's New York headquarters. "To get beyond that you'd have to resume the M&A agenda."
The U.S. contributions could reach a third of the Toronto-based lender's overall earnings within three to five years, underpinned by stronger economic growth, he said. That's up from 24 percent in fiscal 2017, before White took over, and 28 percent for the three months ended July 31. Bank of Montreal's U.S. lender, BMO Harris Bank, alone earned C$1.02 billion ($760 million) in the fiscal year's first three quarters, and is on pace for an annual record.
"We'll produce well through $1 billion of earnings from our U.S. operations this year, and that's been a conscious acceleration," said White, who took over as CEO in November.
Canada's oldest bank made its first U.S. foray in 1818 by opening an agency office in New York. Its main U.S. push began in 1984 when it acquired Chicago-based Harris Bank, starting a decades-long expansion fueled by acquisitions across the U.S. Midwest. The lender has also boosted wealth management and investment banking south of the Canadian border.
White, 47, says he sees greater opportunity for growth in the U.S. than in Canada. Bank of Montreal has personal and commercial banking business in 10 major U.S. cities, as well as wealth management and capital-markets operations across the country.
"We've got feet on the ground and flags flying in markets that are a third of the U.S. GDP," White said. "We have an addressable market in which we are established — our brand flies, our people know what they're doing — that is already way bigger than Canada as far as GDP potential."
The U.S. capital-markets business posted $40 million in third-quarter profit, its lowest in at least two years. White said that, while the business will be volatile, he expects profit of $70 million to $80 million a quarter within a couple of years.
"If we continue to get constructive markets for the next year, two years we'll consistently produce that," he said. "We don't need anything else to do that."
White said he sees no need to push to become a "top 10" player in U.S. investment banking, a goal that Royal Bank of Canada has pursued for the past eight years.
"We would have to consciously change our strategy, and that's not our intention," he said. "To have an objective of Top 10 would be a very different strategy and you'd have to, in my view, sacrifice profitability along the way."
The U.S. provides opportunity for Bank of Montreal regardless of the outcome of talks among Canada, the U.S. and Mexico to renew the North American Free Trade Agreement, White said. He said he expects the talks to succeed, though even if they fail it wouldn't be a disaster.
A breakdown in Nafta talks wouldn't hit the U.S. as hard as Canada, where it would probably shave about 1 percent off of cumulative economic growth over five years, White said. For Bank of Montreal, the nation's fourth-largest lender by assets, the impact would be negligible, he said.
"I'm worried about it, but it's not the top of my worry list," he said. A failed deal isn't good for either country, he said. "It's a little bit more problematic for Canada than it is for the United States, and it's not catastrophic in each case."
