BMO’s Q1 earnings show more credit deterioration in trucking industry
There are numerous ways of looking at the quarterly data from Canada’s BMO on the credit health of the trucking sector. None of them are positive.
Canada’s BMO is a major lender to the trucking industry in North America. In the bank’s first-quarter 2024 earnings released Tuesday, BMO’s gross impaired loans and acceptances, where BMO has identified a loan it believes it may be unlikely to recover, soared to CA$230 million ($170 million) up from CA$170 million a quarter earlier and CA$82 million a year ago.
Weakening credit conditions in #trucking were on full display in today's release of $BMO earnings. The chart shows the level of impaired loans and acceptances in the transportation group, whose lending is overwhelmingly directed at trucking. That's a 26% rise in just one quarter. pic.twitter.com/UYXoRGGYO6
— John Kingston (@JohnHKingston) February 27, 2024
In the best days of the freight market through 2021 and into 2022, that number was less than CA$80 million for four consecutive quarters.
BMO’s (TSX: BMO.TO) first fiscal quarter ended Jan. 31.
The previous high for gross impaired loans at BMO’s transportation group was CA$189 million in both the second and third quarters of 2020. Although the bank of business in the first quarter of 2024 was larger than back in 2020, the size of the impaired loans as a percentage of the bank of business was higher in the just-completed quarter.
Write-offs at the BMO transportation group were CA$31 million. That was up more than CA$50 million from the CA$20 million recorded in the fourth quarter of fiscal 2023. Write-offs were just CA$1 million as recently as the second quarter of 2022.
The CA$31 million in write-offs is not the highest in BMO transportation group history. The figure reached CA$33 million in the third quarter of 2017, when the book of business for the group was just CA$10.1 billion compared to the current book of business near CA$15 billion.
The BMO data lists net impaired loans and acceptances, which are the gross impaired loans (CA$230 million) minus the write-offs (CA$24 million) that have been taken, as CA$206 million. That is up from CA$170 million one quarter earlier and CA$82 million a year ago.
The size of the book of business at BMO’s transportation group dropped significantly, though from an all-time high.
Gross loans in the transportation sector were CA$14.88 billion, down from CA$15.67 billion in the fourth quarter of fiscal 2023. But the size of the gross bookings was still the second-largest in the history of BMO’s ownership of the transportation group, which it acquired from GE Capital in late 2015, with the prior quarter being the only one with a bigger book of business.
BMO is believed to have more than 10,000 customers in its transportation sector, large and small, so its quarterly report on the performance of the transportation group can be viewed as a proxy for the larger health of trucking credit.
As an example of how much the scope of impaired loans can change in an industry going through volatility, the quarterly earnings of BMO for the first quarter listed oil and gas impaired loans at CA$21 million. In the third quarter of 2020, when the price of oil had plunged at the start of the pandemic, that size of gross impaired oil and gas loans at BMO was CA$761 million.
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