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New BMO chief Darryl White leaves deal-making past behind

Incoming CEO of BMO and former COO Darryl White is pictured in Toronto on Friday April 7, 2017.

for The Globe and Mail/Chris Young

Early in Gord Nixon's run as CEO of Royal Bank of Canada, his former investment banking partners started quietly complaining the new boss had forgotten his roots, because he was directing the bank's considerable resources away from capital markets and into wealth management acquisitions.

The same grumbling played out three years ago when Brian Porter took the reins at Bank of Nova Scotia, with i-bankers whining they were not feeling the love from their one-time teammate, who now seemed fixated on credit cards and fintech.

Brace for similar muttering and sputtering out of Bank of Montreal when former media and telecom deal-maker Darryl White takes over as CEO in November.

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Read more: BMO CEO Bill Downe passes torch to veteran investment banker Darryl White

Mr. White's colleagues at BMO Capital Markets are justifiably proud of their low-ego, approachable colleague, who championed building a regional firm into a top-tier North American brokerage house. By this time next year, they may be ripping him for starving them of capital.

If this is the case, BMO shareholders will be well-served, as were those of RBC and Scotiabank. In choosing a successor to Bill Downe, who spent a decade at the helm, BMO's board decided on Mr. White because they believe he is a strong leader, not because they have a sudden desire to ramp up the investment bank.

Incoming bank CEOs inherit breathtakingly profitable franchises. Job one: Don't blow it up. The rest of the role is to focus the bank on high-margin businesses and grip-and-grin with clients and employees until you ache.

Mr. White no doubt knows that, in the past, Canadian banks that put a heavy emphasis on capital markets in boom times took a painful hit when markets went bust – we're looking at you, CIBC.

Retail banking and wealth management churn out consistent earnings, which is why shares in the banks with the largest branch networks, RBC and TD Bank, typically command the highest stock market valuations. In fact, RBC caps profits from capital markets at 25 per cent of total earnings, which can be something of a challenge, as RBC runs an extremely successful investment bank.

Mr. White has every reason to ask the investment bankers to do more with less, while plowing money into more shareholder-friendly lines of business.

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Mr. Downe hands over a bank that is in good shape, which is no small favour, as BMO's current CEO spent the first year of his mandate bringing expenses into line by cutting jobs. As with his predecessor, Mr. White's priorities will include improving the return on equity from U.S. businesses.

Profit margins in BMO's Chicago-area retail banks are a fraction of what it earns at branches in Canada, a reality that haunts TD 's East Coast U.S. network. Mr. White is expected to try to improve overall results by expanding a U.S. commercial lending business that makes decent returns.

As with RBC, Mr. White may find it's easier to buy wealth management franchises than build them. And, in step with Mr. Porter at Scotiabank, Mr. White will need to do a deep dive into digital to ensure a 200-year-old bank continues to offer products and services the way clients want.

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About the Author
Business Columnist

Andrew Willis is a business columnist for the Report on Business at The Globe and Mail, based in Toronto.He has been in business communications and journalism for three decades. More

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