Credit metrics at the transportation unit of BMO, the former Bank of Montreal, were down virtually across the board in the fourth quarter, and the size of the business is shrinking as well.
BMO’s (NYSE: BMO) transportation unit is a major lender to the North American trucking industry. It has seen a rising tide of writeoffs, allowances and impairments alongside the freight recession.
Given its size and the disclosure of its credit data in its quarterly earnings, which were released Thursday, the numbers tell a revealing but not-surprising story about how carriers are faring in servicing their debts. The transportation sector at BMO is believed to be about 90% trucking company clients.
The size of the business measured in gross loans and acceptances had mostly been staying steady during the slide. But that is clearly coming to an end.
Gross loans and acceptances at the transportation sector in the fourth quarter ended October 31 were just under CAD$13 billion ($9.31 billion). In the third quarter, that figure was $13.7 billion and it was $14 billion in the second quarter.
Book of business is down
The high water mark of that book of business in BMO’s transportation sector came two years ago in the fourth quarter of 2023, when it was $15.6 billion.
It’s been four years since the book of business at BMO’s transportation sector has been this low. The figure for the fourth quarter of 2023 also was just under $13 billion.
The shrinking of the sector’s book of business comes after an August report published by Bloomberg that BMO might be looking to sell the unit.
If it does get sold, a buyer would be picking up a lender that has seen the size of some of its negative credit metrics over the past few years explode by multiples that can be counted in the hundreds.
For example, allowances for credit losses in the transportation sector were $8 million in the third quarter of 2022, right after the crest of the post-recession freight boom.
In the latest quarter, that number reached an all-time high of $71 million, an increase of about 887% during that time. It was up from $66 million in the third quarter.
Gross impaired loans surge
The largest increase quarter to quarter came in the category of gross impaired loans and acceptances. They came in at $585 million, a huge jump from $424 million in the third quarter. They were more than $80 million higher than the previous record high of $503 million in the second quarter.
The post-pandemic low was $72 million in the third quarter of 2022, followed a quarter later by $73 million.
An impaired loan has been defined as one where, according to the Federal Reserve, “based on current information and events, it is probable that a creditor will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement.”
Writeoffs were higher in the fourth quarter than the third–$43 million versus $32 million–but remained below the $63 million recorded a year ago, and the $46 million from the first quarter.
Provisions showed some measure of improvement. Both provisions and allowances are accounting steps taken to recognize troubled loans. But provisions show up in a company’s income statement, while allowances are a hit on its balance sheet.
Provisions for credit losses at BMO’s transportation sector were $57 million in the fourth quarter. While that is higher than the previous three quarters, it is less than the $85 million of last year’s fourth quarter and the $77 million in 2024’s third quarter.
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