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Does Bank Of Montreal Stack Up?


BMO is the fourth largest bank in Canada and the eighth in North America.

They have solid growth prospects and an attractive yield.

The bank is trading around fair valuation, but doesn't stack up to its peers.

I recently did articles on the 3 biggest banks in Canada, The Bank of Nova Scotia (NYSE:BNS), Toronto-Dominion Bank (NYSE:TD), and Royal Bank of Canada (NYSE:RY), all of which offer different prospects to long-term investors. Those articles can be found here, here and here.

The Bank of Montreal (NYSE:BMO) is the fourth largest bank in Canada, by market capitalization, at ~$42B. They have been in business since 1817, and have now grown to employ ~46,000 employees providing financial services and products to more than 12M customers. Ranking by assets, BMO is the 8th largest bank in North America and they have paid a dividend for 187 years, the longest running dividend record of any company in Canada. However, most recently, they froze their dividend growth for 3 years during the financial crisis and have raised it for 5 years since then.

They currently carry an 11.2% Tier I Capital, the best of all the big 5 Canadian banks, the closest being the Canadian Imperial Bank of Commerce (NYSE:CM) with a 10.9%. This is well above the 6% requirement from Basel III. This ratio measures the financial health of a bank and acts as a way of measuring how well a bank would fare when placed under stress like another financial crisis.

Source: Fact Sheet

Like RY and TD, BMO derives their income primarily from Canada and the United States. Within those countries, approximately 2/3 is in personal and commercial banking, with the rest coming from their wealth management and capital markets divisions. I will look into their growth prospects in these markets more closely later in the article.

Loan Portfolio

Loans/assets and loans/deposits are 2 ratios that an investor can use when analyzing a bank to determine how conservative they are. A higher ratio on either one shows that the bank is willing to loan out a higher amount in comparison to their deposits on hand and total assets. While it's obvious that this ratio can be too high, it can also be too low, showing a bank is not carrying enough loans to drive further earnings. The standard benchmark I have seen is a loan/deposit ratio of ~80-90%. Anything too much lower than that may show a bank is having issues driving loan growth to keep up with their deposits. As we can see above, BMO falls right into the middle of all the big banks, including Wells Fargo (NYSE:WFC), which I added as a favorite conservative pick south of the border (recent news notwithstanding).

Source: em>