BMO needs 2.8 more points of U.S. return on equity to hit its October 2027 target

Measured from the low point, the U.S. business has closed about 69% of the gap: 6.1 points gained since the fourth quarter of 2024, out of the 8.9 points between the 3.1% low and the 12% goal ^[2][3]. A return on equity rises when profit grows or when the equity behind it shrinks. The past 18 months included a good deal of shrinking, with lower-returning loan portfolios sold alongside 138 branches ^[4]. American Banker's account does not split the 6.1 points between those two sources, and it does not give a current efficiency ratio. The last one it prints is 69.4%, from the fourth quarter of 2023, when net revenue was down 25% and expenses up 19% on a year earlier ^[5].

According to Jefferies analyst John Aiken, the shrinking is finished. The loan portfolio restructuring is complete, and commercial loan growth, set back by it, is resuming on relationship banking and new clients ^[10]. "We are anticipating an acceleration in loan growth, back to peer average," Aiken said ^[11]. Aron Levine, BMO's U.S. president, gives the credit to putting personal and business banking, commercial banking and wealth management under one management team ^[17]. "That unified structure has paid dividends in terms of being successful and delivering for our clients," Levine said ^[8]. "We're making good progress on the things we said we'd deliver on." ^[9]

The remaining 2.8 points arrive on schedule if loan growth reaches the peer average Aiken expects and credit holds ^[1]. A slowdown would test both conditions at once. Aiken warned that loan demand could shrink and credit quality could take a hit ^[14]. "BMO is a bit overweight in terms of commercial lending in the U.S., so if we see the business cycle soften, it could potentially take higher credit losses than its peers," he said ^[15]. Rates are the other route to a miss. After the early-2023 acquisition closed, higher rates dampened commercial loan demand and revenue synergies came more slowly than planned ^[6]. Aiken said dramatic rate hikes could be a headwind ^[14].

The branch map shows what BMO is giving up. It keeps a stronghold in states such as Illinois ^[16] and is opening new branches in California ^[12], a state Aiken favors for its deep deposits and for the geographic spread the Bank of the West deal brought ^[13]. The branches it sold sat in slow-growth markets, mostly in the Midwest and Great Plains ^[4].

I think the 12% target is reachable, and that it now rests on loan growth. That makes it a bet on a book heavier in commercial lending than its peers' book, placed before anyone knows which way the cycle turns ^[15]. The counter-case is cost. Levine and Aiken both say the efficiency ratio has improved ^[7][10], and further savings could supply the last points with little help from loans. If U.S. return on equity keeps climbing toward 12% while commercial loan growth stays below the peer average Aiken forecast ^[11], cost was carrying the recovery and the growth thesis here is wrong.