BMO, Big Trucking Lender, Sticks to Existing Bull Market Practices
BMO’s transportation group, the former Bank of Montreal, is widely regarded as the largest lender in the North American trucking industry. And one thing it doesn’t do is change its approach to lending just because the trucking industry has been in a bull market for ages.
Lending standards have not changed, according to C. Daniel Clark, chief transportation finance officer at BMO. Clark, in an interview with FreightWaves at the Truckload Carriers Association’s annual meeting in Las Vegas, said the company can’t abandon past practices just because things are strong.
“You can’t play the cycles in the future and try to predict when it’s going to change,” Clark said. He noted that many of the company’s loans are for five to seven years for tractors and up to 10 years for trailers. “You have to look at the business and its performance throughout the cycle,” he said.
BMO became a leading trucking finance company when it purchased the transportation business from GE Capital in December 2015. Clark was there for this transaction; he’s been there for several sales, ticking off five business owners he worked for during his 41 years of loan to the trucking company, GE and BMO being the last two. (Although the parent company is in Montreal, the transportation division is in Dallas.)
The group’s quarterly data, as part of the publication of the bank’s results, disseminates a significant amount of information on the performance of all its segments, including transport. And what he showed in the last report is an industry that is going full steam ahead, with low write-off rates and bad loans.
Unlike the earnings reports of individual trucking companies, BMO’s data as an industry benchmark has the advantage of being based on the company’s entire transportation customer base. Clark declined to give a figure on the size of his clientele but confirmed that it would be “five figures”. Customers range from independent owner-operators to large fleets.
The transportation group lends to other companies, but Clark said his performance is largely trucking.
With the business so strong now – BMO Transportation Group write-offs in the third quarter ending July 31 were around C $ 6 million ($ 4.75 million at current exchange rates), by far the the lowest level since the bank acquired the GE group – said Clark. lenders have entered the field.
“We are constantly seeing new entrants coming in, and a lot of people came out in 2019 when they saw the stress,” Clark said, referring to the relatively weak market that year. One of BMO’s selling points is that “we’re there in the good times and in the bad times, and I think that’s important for a client who doesn’t want the lender to liquidate the loan when the going gets tough. difficult ”.
“There will always be hot money every time you get a new round, but we keep going back and sticking with what we do,” Clark said. This hot money, once there is a “hiccup” in the economy, “will simply cut its losses and run away.”
BMO’s position in the industry is highlighted when a conference attendee walks into the exhibit hall for the TCA annual meeting. In 2020 – right before the pandemic – and at this year’s reunion, the first sight they see is the large BMO mini-lounge at the front of the room.
When the pandemic struck, Clark said that the company’s increase in business volume for the transportation industry in the second quarter of 2020 reflected the fact that many customers were following the advice that was circulating widely in U.S. businesses throughout the world. era: if you have credit, pull it all out and secure your cash. “Oh, yeah, we saw money was king and most people were getting very liquid,” Clark said.
Gross loans and acceptances for the transportation sector jumped to nearly C $ 13.4 billion in the second quarter of 2020, from C $ 12.2 billion in the previous quarter. It fell back to C $ 12.2 billion in the second quarter of this year, but had climbed to C $ 12.6 billion in the third quarter of 2021.
“It fell and leveled off, but now we expect it to go up,” Clark said.
BMO’s transportation group made further concessions to struggling borrowers at the start of the pandemic, Clark said. Many were granted a 90-day stay on payments, which helped them overcome market weakness in the second quarter of 2020. When the freight market began to rise from its ashes in the third quarter, that 90-day stay “Gave them a quick jump to the upside,” Clark said.
With the rising prices of tractors and trailers – new and used – the danger of financing is that previously agreed credit lines may become insufficient. It’s not just in trucking; any borrower can suddenly find themselves in a position where previously agreed credit lines are far from sufficient to cope with rising prices.
Clark said most prices for new equipment are up 10 to 15 percent from two years ago. Adjustments have been made to most customers, he said, “so that they can continue to buy what they need.”
Given the strength of the trucking market, the low level of depreciation and credit allowances taken by the bank leads to the question: who is so bad in this roaring age that they are falling behind in their payments? In addition to write-offs of approximately C $ 6 million in the third quarter, the size of the bank’s allowance for credit losses was C $ 21 million, still the smallest in several years at BMO.
Clark said the bank’s business volume includes some companies that remain affected by the pandemic. For example, he cited trucking companies that have been serving cruise lines that have been closed for over a year and are just getting back on their feet. “These are usually niche areas that may have gotten through downturns in the past,” Clark said of still struggling borrowers. “We’ve never heard of them in the past, but now they were affected.”
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