Bloomberg News

Bank of Montreal Profit Increase Misses Analysts’ Estimates

December 07, 2011

(Adds company, analyst comments from seventh paragraph.)

Dec. 6 (Bloomberg) -- Bank of Montreal, Canada’s fourth- biggest bank, reported a quarterly profit that missed analysts’ estimates as it set aside more money for souring loans and earned less from investment banking. The stock fell the most in almost a year.

Net income rose 21 percent to C$897 million ($881 million), or C$1.34 a share, in the fiscal fourth quarter ending Oct. 31 from C$739 million, or C$1.24 a share, a year earlier, the Toronto-based bank said today in a statement. Revenue climbed 20 percent to C$3.88 billion, as its takeover of a Wisconsin lender helped bolster earnings from consumer banking.

Bank of Montreal is the first of six Canadian banks to miss analysts’ estimates for the period, as gains in U.S. consumer lending and private-client banking were pared by higher loan- loss provisions and a drop in investment banking and trading revenue. Its adjusted profit was C$1.27 a share, missing the C$1.31 average estimate of 16 analysts surveyed by Bloomberg.

“We would have liked to see Bank of Montreal come out with stronger results given what the rest of the banks came out with,” said Todd Johnson, a money manager at BCV Asset Management in Winnipeg, Manitoba, whose firm oversees about C$300 million. “This is not out of the ordinary from what we can expect from the banking sector in Canada in general. It’s moderating and margins are under pressure.”

Revised Targets

Bank of Montreal fell 3.5 percent to C$57.74 at 4 p.m. in Toronto, the biggest drop in almost a year.

The firm revised its medium-term financial targets, aiming for 8 percent to 10 percent per-share earnings growth and return on equity of between 15 percent and 18 percent, both on an average annual adjusted basis.

“We adjusted the EPS target in reflection of more moderate economic growth that we would have anticipated in the latter half of this year,” Chief Executive Officer William Downe said in an interview. “I think it will pick up, but the first half of 2012 is going to be a little bit slower growth.”

A year ago, Bank of Montreal’s medium-term objective was to increase per-share earnings by an average of 12 percent a year, and to produce an average annual return on equity of 17 percent to 20 percent.

The bank plans to appoint board member Robert Prichard as chairman at its next annual meeting in March to replace David Galloway, who’s retiring, according to a separate statement. For the year, Bank of Montreal said it earned C$3.27 billion, or C$5.26 a share, up 16 percent from C$2.81 billion, or C$4.75 in 2010.

U.S. Banking

Canadian consumer-banking profit rose 1.4 percent to C$424 million, as volume growth from banking products was hurt by declining margins, or the difference between what a bank charges for loans and what it pays in deposits.

“We continue to show strong deposit growth, but we’re not getting the same benefit of it as we would in what I would consider a normal interest-rate environment,” Downe, 59, said.

Net interest margin on average assets was 2.78 percent, the lowest in at least two years.

“BMO clearly faces the headwinds of margin compression, slow loan growth and potentially weakening credit in both the U.S. and Canada,” Peter Routledge, an analyst with National Bank Financial, said in a note.

Loan-loss provisions across the bank rose 15 percent to C$290 million from C$253 million a year ago.

BMO Harris Bank

Profit from its U.S. consumer lender, BMO Harris Bank, more than tripled to C$156 million, after adding earnings from its acquisition of Wisconsin lender Marshall & Ilsley. Bank of Montreal’s C$4.1 billion acquisition that closed in July doubled the U.S. branches and deposits of Chicago-based BMO Harris Bank, giving Bank of Montreal more branches in Chicago than Toronto.

The bank’s BMO Capital Markets investment-banking business had profit of C$149 million, down 30 percent from a year earlier. Trading revenue fell 41 percent to C$128 million, pulled down by trading of equities and interest-rate securities. Revenue from underwriting and advisory fees was C$76 million, less than half that of a year earlier.

The firm’s private-client group, which includes insurance and mutual funds, boosted profit 12 percent to C$144 million.

Bank of Montreal will focus next year on streamlining operations, increasing productivity while cutting unnecessary costs, Downe said.

Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Canadian Imperial Bank of Commerce last week reported results that beat analysts’ estimates.

Yesterday, Canadian Western Bank said profit rose 15 percent to C$45 million and boosted its quarterly dividend to 15 cents a share, a 7.1 percent increase. Excluding one-time items, the Edmonton, Alberta-based bank earned 55 cents a share, matching estimates.

National Bank of Canada, the last Canadian lender scheduled to post results, reports on Dec. 8.

--With assistance from Sean B. Pasternak in Toronto. Editor: David Scanlan, David Scheer, William Ahearn.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; David Scanlan at dscanlan@bloomberg.net


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