SKN | Bank of Montreal Reiterates 15% ROE Target as Core Profitability Imperative

Key Takeaways

• Bank of Montreal is targeting a sustainable 15% return on equity by the end of 2027, with management signaling confidence in maintaining that level into 2028 and beyond.

• Management stresses that the ROE rebuild is being driven by operating execution, not credit releases, reducing reliance on cyclical tailwinds.

• The U.S. banking franchise remains central to the strategy, with a 12% ROE target and structural changes expected to fully flow through by mid-2026.

Shares of Bank of Montreal drew attention following comments from Chief Executive Officer Darryl White, who used a recent conference appearance to restate the bank’s core strategic objective: exiting 2027 with a 15% return on equity and sustaining that level thereafter. The message was clear and deliberate—ROE is not a short-term milestone, but the anchor for BMO’s capital allocation, expense discipline, and growth strategy.

ROE Rebuild Anchored in Operating Performance

White described the ROE trajectory as the bank’s “number one imperative,” noting that BMO lifted ROE by approximately 150 basis points year-on-year in 2025 while delivering 26% earnings-per-share growth. Importantly for investors, he emphasized that this improvement was not driven by credit releases. Impaired provisions for credit losses were broadly flat year-on-year, reinforcing the view that gains are coming from core operating leverage.

The bank posted positive operating leverage of more than 4% in 2025 and strong growth in pre-provision, pre-tax earnings. Management intends to recommit to positive operating leverage at the total-bank level in 2026, positioning efficiency gains as a durable contributor to shareholder returns.

U.S. Franchise as the Primary Lever

The U.S. business remains the most significant variable in BMO’s ROE equation. Management is targeting a 12% ROE in the U.S. segment by the end of 2027, supported by a reorganization implemented in mid-2025 that unified retail, commercial, and wealth businesses under a single leadership structure.

According to White, roughly 80% of U.S. balance-sheet optimization is complete, with the full benefit of structural and capital actions expected to be visible by the second quarter of 2026. Loan growth is anticipated to re-emerge around mid-2026, potentially scaling to mid-single-digit growth assuming a stable macro backdrop. Deposit performance has stabilized following earlier volatility, with management focused on improving mix and lowering funding costs.

Credit Outlook and Capital Discipline

On credit, White struck a measured tone. While the bank continues to work toward normalizing impaired provisions over time, management does not expect a material credit tailwind in 2026. Credit trends are expected to remain broadly flat near term, reminding investors that the 15% ROE target does not depend on an unusually benign credit cycle.

Capital strength remains a supporting pillar. BMO ended 2025 with a CET1 ratio of 13.3%, generated roughly 90 basis points of capital during the year, and repurchased about 3% of its market capitalization. Management reiterated its ability to fund organic growth while continuing disciplined buybacks.

Canada, Capital Markets, and Execution Risk

In Canada, management is budgeting for low single-digit loan growth amid lingering uncertainty tied to trade and geopolitics, though recent client discussions suggest resilience may be improving. Expense discipline continues to tighten, with restructuring initiatives expected to deliver meaningful run-rate savings by 2027.

Capital markets performance exceeded internal profitability targets throughout 2025, prompting management to consider raising those benchmarks. Long-standing franchises, including metals and mining, were highlighted as areas with longer-term optionality rather than immediate earnings acceleration.

Strategic Perspective

White closed with a notably optimistic macro outlook, citing expectations for steady U.S. and Canadian growth. For investors, the key signal is consistency: BMO’s leadership is aligning capital deployment, cost control, and growth initiatives around a single metric—sustainable ROE.

From a strategic standpoint, the message is not about chasing upside surprises, but about execution credibility. Whether BMO ultimately commands a higher valuation multiple will depend on its ability to demonstrate that a 15% ROE is not cyclical, but structural—and repeatable.

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