Skip to main content

Last year BMO’s residential lending portfolio grew at the fastest rate of the Big Six lenders.Reynard Li/Bloomberg

Backed by retail banking growth worth bragging about, Bank of Montreal is finally revealing its domestic strategy.

Under the tutelage of chief executive Bill Downe BMO spent the past few years investing heavily in Canadian retail banking, determined to diversify the lender's commercial roots. Because the revamp was such a monumental task, managers largely kept their heads down, offering few clues as to what was happening inside the bank.

But major gains made in 2014 gave BMO executives the confidence to break their secrecy and disclose their strategy at an investor conference Thursday. Last year the bank's residential lending portfolio grew at the fastest rate of the Big Six lenders – albeit off a smaller base than some peers – and BMO also grew its deposit base at the second-fastest rate in the industry.

"We're awfully proud of the progress that we've made," said chief operating officer Frank Techar. "We are a different bank today … and we are a stronger competitor."

For years the knock against BMO was that it didn't know what kind of bank it wanted to be. Without a clear focus, the country's fourth largest lender languished, lacking the momentum necessary to make a name for itself in domestic retail banking.

But since the financial crisis, and particularly in the past three years, BMO has reimagined the way it does business at home. To retool its operations it concentrated on mortgage growth – resulting in its rock-bottom 2.99-per-cent mortgage rates the past three springs – and then shifted its attention to pulling in deposits. (Deposits are key because they serve as a cheap source of funding for future loans.)

At the same time the bank retrained thousands of front-line workers, determined to get them to be more aggressive with their sales tactics. The core lesson: ask customers for their business; don't expect it to simply come to you.

That initiative dovetailed with an investment in technology. Within its branch network BMO now uses algorithms to analyze client data and offer retail bankers suggestions about which products to recommend. The digital investment also involved sizable spending on mobile technology.

While the strategy seems so coherent in retrospect, it was hard to execute. "Many of you know the retail business is a complex ecosystem [with] large employee populations, millions of customer interactions across multiple channels and complex processes and systems," retail banking head Ernie Johannson told the audience.

The big question now is whether BMO's strategy will pay future dividends. The bank won over mortgage borrowers by offering them low prices, but it needs to capitalize on that by cross-selling products. While winning a mortgage client is important, the harder task is getting that customer to take on something more, such as a credit card. The stakes are high because BMO cut into its lending margin to win the mortgage.

BMO also talked at length about being more personable to retail banking clients. As Cam Fowler, BMO's Canadian personal and commercial baning head, put it, they wanted employees to be "people first, bankers second."

The retail strategy is closely tied to growing the bank's wealth management arm. "It's no accident that we're presenting the Canadian [personal and commercial] and the wealth business together," Mr. Techar said at the conference.

Currently wealth management comprises 22 per cent of the bank's bottom line and executives hope that will hit 30 per cent in the long run. To help achieve that goal, BMO will rely on its substantial branch network -- something management stressed it will not shrink -- with hopes of selling in-house funds to its own retail clients.

One key to that growth is the exchange-traded fund business. BMO launched its first ETFs – essentially low cost funds that can be bought and sold throughout the day on stock exchanges -- five years ago, amid concerns that they would cannibalize their mutual funds.

BMO's slate of ETFs now account for more than 24 per cent of the Canadian ETF industry, in terms of assets, with a particular focus on so-called smart beta funds that slice and dice major indexes in different ways. Meanwhile, BMO's share of mutual fund assets among the Big Banks has grown to 11.6 per cent, up from 10.7 per cent over the past five years.