Further credit deterioration in trucking is evident in the quarterly earnings report of Canada’s BMO bank.
BMO (NYSE: BMO), the former Bank of Montreal, is one of the largest lenders to the trucking industry. Its transportation unit, purchased from GE Capital in 2015, has a customer base believed to be in the tens of thousands. Roughly 90% of its transportation sector is reportedly truck financing.
Provisions for credit losses at BMO in the quarter ended April 30 climbed to CA$56 million (U.S. $41 million). That marks the seventh consecutive quarter in which that important benchmark figure has risen, and it is easily the highest figure in the history of the BMO data going back to 2015 when the bank bought the business from GE Capital.
That seven-quarter stretch started with provisions of $2 million in the fourth quarter of 2022, an amount that followed a net positive provision of $3 million a quarter earlier. Provisions can be positive when losses are extremely low and are offset by earlier provisions being removed from the danger list as financial conditions allow earlier troubled borrowers to get financially healthy.
Since that Q4 2022 figure, the provisions rose sequentially to $6 million, $18 million, $19 million, $26 million and $41 million before its latest amount. In one year, provisions for credit losses in the transportation group at BMO have risen about 210%.
Even in the depths of the pandemic, in the second quarter of 2020, provisions for credit losses in BMO’s transportation group were only $38 million.
Write-offs also have soared. In the second quarter, BMO write-offs in the transportation sector were $51 million. The sequential transportation sector write-offs over the prior four quarters were $10 million, $16 million, $20 million and $31 million.
But BMO’s transportation group shows no signs of pulling back. Its gross loans and acceptances rose to $15.05 billion, the highest in its history since the activities became part of the bank’s operations.
Another key category, gross impaired loans, totaled $305 million, up from $230 million in the prior quarter. An impaired loan has been defined as one about which management believes there is significant doubt whether it can be repaid. The sequence at BMO for that category in the previous four quarters is $91 million, $113 million, $170 million and $230 million.
If there was anything positive in the report about the credit health for trucking, it came in allowances for credit losses, which held at $24 million. The difference between allowances and provisions, which worsened considerably, has been described as allowances representing a balance sheet item that gets charged against gross loans. Provisions for credit losses have been described as a figure that affects bank income.
On BMO’s earnings call with analysts, the transportation group was the subject of specific discussion, which is not the norm.
Chief Risk Officer Piyush Agrawal said BMO has been in transportation “for 40 years, 50 years. We’ve been through several cycles. We managed through several cycles, and we’re beginning to see some recovery or flattening out of delinquencies out there.”
According to a transcript of the call, Agrawal added that the transportation business is weighted toward small truckers, many with 10 or fewer trucks in their fleets.
BMO’s transportation group is outperforming delinquency benchmarks, Agrawal said. But it still took increased impairment charges for the quarter, leading to the increased level of impaired loans.
“We feel good about that performance because with the summer, tonnage is picking up. Freight rates will move up,” Agrawal said. “And I think as supply goes down, they should do well.”
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Carlos USA 2024 🎗️🇺🇸🎗️
🛑We used BMO previously and the customer service was horrific along with their horrific interest rates even though we have perfect credit.
Not getting any sympathetic response from us about BMO ⚠️
David
A good faith effort to support a sector that doesn’t exist to most people. There’s a bank that won’t fall any thyme soon.
Dale Spencer
Bank collapsing because of Biden comics yes before this idiot is done USA and many more country’s will be like they were in the Carter days one good thing probably won’t have to deal with another democrat president for thirty years that what happened after jimmy
Stephen Webster
In Canada in Jan of 2022 we had a equal number of trucks as freight and probably 3000 drivers short
I fed labor dept study said Canada still needed 7000 to 10 000 more truck drivers from April to November for construction and agricultural hauling of inputs and crops mostly in Alberta sask and Manitoba. Where the housing shortage was not as bad as in Ontario and British Columbia. Instead the larger trucking companies lobbies and gets year around permits to both bring in foreign truck drivers from countries like turkey and India that have a different way of driving and living
They also allowed over 10 000 foreign students to become truck drivers in 2022 and 2023. So over 25 000 foreign drivers plus 10 000 student drivers was 35 000 more drivers when we maybe needed 3000 more full-time drivers plus 7000 season drivers has created a surplus of of 20 000 to 25 000 truck drivers and 20 000 trucks in Canada. This has caused over 10 000 lease and or owner ops to leave the industry and rates to drop 50 to 60 cents a mile in Canada and 30 cents a mile on cross border freight. Until the United States gov stands up and limits how far into the U S truck drivers from Canada and Mexico can go we will continue to have trucking rates below cost. This will cause more crashes in my opinion. A number of well run good trucking companies in Ont Canada have closed and more will close. At the same time we have rents of $3000 a month and house payments of $5000 a month caused by large trucking companies and others bringing low wage foreign workers without building housing. It is expected that Canada will have 750 000 homeless next year unless a limit on foreign students and foreign workers coming to ont and B Canada.
Deebo Smith
They are terrible Bank and out of touch with the small trucking companies
Eli
When I was banking with the bank of the west of California, a great banks BMO took over and you could never get no good response help people from overseas can never talk to you 😩 I try asking questions people from here from the states. They could never answer a good question
Russ
K&L Transport will go out of business soon.