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BMO’s transportation sector write-offs fall to lowest level in 5 years

Major lender to trucking companies releases quarterly data showing economic strength

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Write-offs and other signs of distress in the transportation book of business at BMO (TO: BMO.TO) remained healthy in the midst of a strong freight market, showing only minimal signs of deterioration from the prior quarter.

BMO’s transportation book is heavily weighted toward U.S. trucking. As a publicly traded bank that discloses quarterly data, its numbers are seen as a good indicator of industry strength or weakness.

In the second quarter of 2021, the Canadian-based bank (which was formerly named the Bank of Montreal) had transportation sector write-offs of CA$10 million (U.S. $8.3 million) In the prior quarter, that figure was CA$11 million. 

More importantly, in the second quarter of 2020, the transportation write-offs were CA$35 million, and they were CA$30 million in the first quarter of last year. Just two quarters ago, in the fourth quarter of 2020, that figure totaled CA$23 million. 

For the first six months of fiscal 2021 at BMO, write-offs in the transportation sector totaled CA$21 million. In the first six months last year, that figure was CA$60 million.

To illustrate just how low the figure for the quarter is compared to recent history, the next lowest quarterly figure for transportation write-offs was CA$2 million in the first quarter of 2016, when BMO had just acquired the transportation segment from GE Capital. 

In 2017, the full-year write-offs were CA$101 million. With half of this fiscal year in the books, BMO’s write-offs in transportation are not even 25% of that.

Another indicator of the health of the transportation book at BMO is the allowances for credit losses. These are credits that are on the books as assets — unlike loans that have been written off — but are in various stages of distress in the bank’s ability to collect those debts.

That figure showed strength as well. The transportation segment’s allowances for credit losses dropped to CA$25 million from CA$32 million. The second-quarter decline shows that figure breaking out of a fairly tight range of quarterly allowances for credit losses going back to the first quarter of 2019, with every quarter through this year’s first quarter showing credit allowances in a range of CA$28 million to CA$36 million.

The size of the transportation book at BMO is significantly down from last year, but that is to be expected. In the second quarter of 2020, companies across the board pulled down all or most of their revolving credit lines, given the uncertainty created by the start of the pandemic. 

Net loans and acceptances for BMO’s transportation segment, which account for credit loss allowances, was CA$12.19 billion in the second quarter of 2021. A year ago it was CA$13.35 billion. 

But even if the year-on-year analysis shows a smaller book of business, likely because of that one-off situation last year, the BMO book of transportation business is higher. It was CA$11.42 billion in the first quarter of 2019 and mostly has been sequentially higher since then.

However, the second-quarter 2021 book was smaller than the first quarter, which was CA$12.37 billion. 

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.