Darryl White steps into new role as BMO CEO
Bank of Montreal’s Darryl White steps into the top job at Canada’s oldest lender with a tough task: building on legacy while persuading investors to back a stock that has underperformed.
The former investment banker becomes chief executive officer Wednesday, taking over as Bill Downe retires after a decade leading the country’s fourth-largest bank by assets. White, 46, inherits a 200-year-old firm greatly reshaped during Downe’s tenure, but one that struggles to distinguish itself from its Canadian rivals.
“Bill Downe has done an OK job, but Bank of Montreal is not in the same league as TD, Royal Bank and the Bank of Nova Scotia,” said Ian Nakamoto, an equity specialist with Raymond James Ltd. in Toronto. “Darryl White’s got to define the bank better in investors’ minds. It’s hard for me to say in a few sentences what Bank of Montreal is.”
Bank of Montreal didn’t make White or Downe available to comment on this story, but White said in a July 5 Bloomberg TV interview to expect “a reasonably similar” strategy under his leadership, with an emphasis on getting a greater share of earnings from the U.S.
During his tenure, Downe, 65, focused on takeovers outside the Toronto-based firm’s home turf. He doubled U.S. deposits and branches at its Chicago-based BMO Harris Bank, expanded in Europe with a 2014 takeover of F&C Asset Management and bought a transportation-finance business from General Electric Co. a year later.
Despite the changes, Bank of Montreal lags behind its peers on many financial measures. The firm has been at or near the bottom among the biggest Canadian banks over the past eight years based on return on equity, a measure of profitability. Its price-to-earnings ratio is the second lowest of those lenders, exceeding only smaller rival Canadian Imperial Bank of Commerce. It also has higher costs relative to revenue, meaning it’s less efficient than competitors.
Bank of Montreal shares excluding dividends rose 41 per cent under Downe’s tenure, trailing the 71 per cent advance of the eight-company S&P/TSX Commercial Banks Index. The lender has been Canada’s cheapest bank stock, measured on price to tangible book value, for almost all that period.
“I like BMO personally, but I know a lot of people who don’t," said John Kinsey of Caldwell Securities Ltd. in Toronto, which oversees more than $1 billion, including Bank of Montreal shares. “People got tired of waiting for Harris Bank to kick in and that may be part of the problem. But I’m a patient guy."
Kinsey said regular dividend increases, as well as Downe’s focus on strengthening the U.S. business, helped make the bank stronger than before. Still, he said he’s keen to see what White will focus on.
“I’d like to see where he does go in Canada," Kinsey said. “I like the U.S. platform. It’s a very good asset and it has growth in it, and he could build on that. And I’d like to see what he has planned for international."
White, the one-time head of BMO Capital Markets, has been viewed as the heir apparent since being promoted to chief operating officer in an executive shuffle announced last year. He joined the bank in 1994 and has held a variety of senior management positions, including head of equity capital markets and CEO of the BMO Nesbitt Burns wealth-management unit. White is a graduate of the University of Western Ontario’s Ivey Business School and a director of the Montreal Canadiens hockey team.
He takes over in a very different climate than his predecessor did in March 2007. On his first day, Downe announced 1,000 job cuts, or 3 per cent of the workforce, to rein in costs. The bank was stung that year by the biggest trading debacle in Canadian history at the time -- a $680 million pretax loss from bad bets on natural gas options. Then, the global financial crisis hit.
Still, Downe took advantage of the crisis to expand, advancing as others retreated. A key was the C$4.1 billion takeover of Milwaukee-based Marshall & Ilsley Corp. in July 2011, which became the cornerstone of the bank’s further growth in the U.S.
“History will show that the move to acquire M&I, when the market was not yet sure that the banking and housing downturn was over, was very well-timed," said Sumit Malhotra, an analyst at Scotia Capital, who rates the stock as sector outperform. “BMO deserves credit for having both the capital and fortitude to be able to get it done."
White’s to-do list should include building up the personal-banking business in the U.S. so that the firm is less dependent on commercial lending, and boosting productivity in Canada, said Steve Belisle, a portfolio manager with Manulife Asset Management, who helps oversee about C$4 billion. Belisle hasn’t owned the stock for about two years, but said he’s willing to reconsider.
“I’d like to see an interesting and tangible plan to improve productivity and improve the U.S. banking franchise," Belisle said. “If I see that, I would expect better returns out of BMO now that relative valuation has come down."