Bank of Montreal (NYSE:BMO) Q4 2022 Earnings Call Transcript

Tayfun Tuzun: No. We were. We had a number of credit risk transfer transactions over the past 90 to 120 days that have actually had an impact on the net growth numbers in RWA.

Gabriel Dechaine: And is there a big revenue you would give us given those activities?

Tayfun Tuzun: No. The cost of these transactions compare very well with respect to cost of equity in general.

Gabriel Dechaine: And then the last one, sorry.

Piyush Agrawal: I was just going to say that, Gabe, as part of these risk transfers over time, these are actually positive for the bank because it frees up capital. And so as you’re earning fees from clients, you actually get to redeploy capital at the current market price across different areas. So from a risk management, it’s a win for the bank. It’s a win on the net revenue over time. So I consider this very positive.

Gabriel Dechaine: And then just a last one. I’m looking at your wholesale loans, Page 27 of the supplement. The total balance is up $60 billion — $70 billion year-over-year. About a quarter of that is from the non-bank financial services category. Can you tell me within that what’s…

Piyush Agrawal: You’re looking at the overall loan book? So…

Gabriel Dechaine: Yes, loan

Piyush Agrawal: Yes. Our financial is obviously, is a very macro taxonomy. And so within that, you’ve got lots of subcategories. So if I break it up between exposures we will have to banks, to broker dealers, other investment companies, and you also have sponsor lending companies, private equity and others. And each of these carry a different risk profile. We’ve obviously — these customers we’ve had for a very long time. They’re well structured. There’s different forms of lending in those. And so we feel good about the quality of loans and the performance across each one of these. I don’t know if you’re referring to something which was in the news recently, but I would just say…

Gabriel Dechaine: No.

Piyush Agrawal: Then…

Gabriel Dechaine: It’s more plain vanilla. It’s a big number. When they jump out, I just want to know what’s in there and get a better understanding of it. So is there — of the categories I mentioned, is there one or two that…

Piyush Agrawal: No. And they’re all well managed, all within our limits, concentrations. All that is good. So I wouldn’t add anything that’s significant.

Gabriel Dechaine: Okay. Thank you. Have a good day.

Piyush Agrawal: Thanks.

Gabriel Dechaine: Thank you. The next question is from Paul Holden from CIBC. Please go ahead.

Paul Holden: Thank you. Good morning. I want to go back to the credit risk transfer transactions. I just want to better understand how that comes through the P&L if it doesn’t have a big impact on revenue. Is it flowing through the expense line? Like there must be some kind of costs associated with it. So just wondering where we can see that. And if there’s any disclosure that would help us quantify the size of that program and the potential earnings impact.

Tayfun Tuzun: Yes, Paul, it will come through both depending upon the transaction. We don’t have current disclosures that lay it out for you. But let us take that back and see if we can provide a bit more clarity on how those transactions impact our income statement.

Paul Holden: That would be helpful. Thank you. And then second question is with respect to credit line utilization, I guess, particularly on commercial and corporate customers, is it kind of back to pre-pandemic type levels, above, below? And is there any kind of potential headwind there with the debt capital markets now opening back up in a potential terming out of debt, if you will, from customers and then a repay down on those credit lines?