• ITVI.USA
    13,795.070
    81.410
    0.6%
  • OTRI.USA
    26.560
    -0.120
    -0.4%
  • OTVI.USA
    13,740.380
    64.000
    0.5%
  • TLT.USA
    2.720
    -0.060
    -2.2%
  • TSTOPVRPM.ATLPHL
    2.670
    0.130
    5.1%
  • TSTOPVRPM.CHIATL
    2.930
    0.280
    10.6%
  • TSTOPVRPM.DALLAX
    1.320
    -0.020
    -1.5%
  • TSTOPVRPM.LAXDAL
    3.040
    0.050
    1.7%
  • TSTOPVRPM.PHLCHI
    1.740
    0.050
    3%
  • TSTOPVRPM.LAXSEA
    3.210
    0.000
    0%
  • WAIT.USA
    108.000
    5.000
    4.9%
  • ITVI.USA
    13,795.070
    81.410
    0.6%
  • OTRI.USA
    26.560
    -0.120
    -0.4%
  • OTVI.USA
    13,740.380
    64.000
    0.5%
  • TLT.USA
    2.720
    -0.060
    -2.2%
  • TSTOPVRPM.ATLPHL
    2.670
    0.130
    5.1%
  • TSTOPVRPM.CHIATL
    2.930
    0.280
    10.6%
  • TSTOPVRPM.DALLAX
    1.320
    -0.020
    -1.5%
  • TSTOPVRPM.LAXDAL
    3.040
    0.050
    1.7%
  • TSTOPVRPM.PHLCHI
    1.740
    0.050
    3%
  • TSTOPVRPM.LAXSEA
    3.210
    0.000
    0%
  • WAIT.USA
    108.000
    5.000
    4.9%
Company earningsDriver issuesFinanceNewsTrucking

Major trucking lender BMO sees bigger transportation impairments, writeoffs in Q2

The quarterly earnings report of Canada’s BMO bank, one of the largest lenders to the trucking sector in North America, reflected a deterioration of the company’s book of business with the industry.

Virtually every benchmark number broken out for the company’s transportation sector in the second quarter ended April 30 showed a sequential weakening compared to the first quarter that ended Jan. 31. The deterioration was particularly stark when compared against the second quarter of 2019.

BMO’s transportation sector is believed to be about 75% trucking-based, though there are other transportation-based loans in the portfolio. It is also about 90% U.S.-based. The sector’s performance is considered a strong indicator of the overall health of the market for trucking loans and the industry itself. 

The figure for gross impaired loans in the transportation sector rose to C$189 million (US$137.2 million) from C$164 million. In the second quarter last year, that number was at C$147 million. 

A bank considers a loan impaired after certain established criteria on its repayment have failed to be met.   

Net impaired loans jumped to C$154 million from C$131 million. A year ago, they were C$117 million. 

The difference between the two is accounted for in a category called allowance for credit losses, which rose to C$35 million in the second quarter, up from C$33 million. Accounting standards require a certain amount of reserves, or allowances, be put aside by the bank when a loan is considered impaired. 

Writeoffs in the transportation sector, which occur when the bank sees no reasonable chance of collecting its debts, jumped 40% to C$35 million from C$25 million in the prior quarter. A year ago, writeoffs were C$14 million.

To get a good handle on how that writeoff figure looks at BMO, compare it with the strong trucking year of 2018. During 2018’s bullish midyear market, writeoffs in the second quarter were $17 million, and they were $15 million in the third quarter, which included the bountiful market of June and July 2018.

But what’s interesting is that while the writeoff figures during the 2018 bull market were less than half the recent writeoff figures, the size of the impaired loans book was significantly closer to the current levels, even during the bull market itself.

While gross impaired loans for the BMO transportation sector didn’t drop substantially in the midst of the midyear bull market in 2018, clocking in at C$156 million and C$151 million, respectively, for the second and third quarters, the fourth quarter that ended Oct. 31, 2018, saw that gross impaired figure drop to C$121 million, an apparent delayed reaction to the strong market of midyear.  

Except for a decline from the second quarter of 2019 to the third quarter of 2019, gross impaired loans for BMO’s transportation division have risen every quarter since. 

The rise in impaired transportation loans at BMO for the quarter was a blip compared to its oil and gas book of business. For the second quarter, gross impaired loans for the company’s oil and gas activities rose to C$616 million. One quarter ago, it was C$373 million. Last year in the second quarter, it was $234 million.

BMO’s gross loans and acceptances in the transportation sector — in other words, the size of its book of business — rose in the second quarter, to C$13.38 billion from C$12.21 billion. While it can’t be determined why the bank of business rose, it should be noted that one action many companies in all sectors of the economy took at the start of the pandemic — in many cases, they were advised to do so — was to pull down their revolving credit lines, all at once and for every last available dollar.

The C$13.38 billion bank of business for the second quarter put the transportation segment up about C$1.35 billion from the second quarter of 2019. 

BMO entered the transportation sector in a big way with the purchase in 2015 of the transportation unit of GE Capital for $8.7 billion. On the company’s earnings call for the first quarter, Dave Casper, the head of BMO’s personal and commercial business in the U.S., said the bank views transportation as a strong business and one that has staying power. 

“A number of our competitors get in when things are really good and get out quickly,” he said on that Feb. 25 call. “And we’ve seen that recently a couple have gotten out and that just makes it better for us. We’ve got the best team to run this through the cycles and I’m very, very happy with it.”

On the most recent call, the transportation segment at BMO was mentioned only in passing, particularly when compared to the numerous comments about it in the first-quarter call.

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.
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