Bank of Montreal’s BMO-T -1.02%decrease first quarter profit missed analysts’ estimates on a slump in capital markets profit and an uptick in reserves for loans that could default.
Adjusted to exclude certain items, the bank said it earned $2.56 per share. That fell below the $3.02 per share analysts expected, according to Refinitiv.
In the quarter, BMO set aside $627-million in provisions for credit losses — the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $154-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, BMO set aside $217-million in provisions.
“Against an uncertain economic outlook, we continued to demonstrate the strength and resilience of our diversified businesses and the benefit of strategic acquisitions,” BMO chief executive officer Darryl White said in a statement. “Although the environment has constrained revenue growth in market sensitive businesses in the near term, with the strength of our personal and commercial businesses and our sharp focus on positioning the bank effectively for long-term success by reducing expenses, optimizing our balance sheet, and growing customer relationships, we are poised to create significant value for our shareholders.”
The bank kept its quarterly dividend unchanged at $1.51 cents per share.
BMO is the second major Canadian bank to report earnings for the fiscal first quarter. Bank of Nova Scotia also released its financial results early Tuesday morning. Royal Bank of Canada and National Bank of Canada will release their results on Wednesday and Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will close out the week on Thursday.
Total revenue rose 50 per cent in the quarter to $7.7-billion as BMO integrates its acquisition of California-based Bank of the West. But expenses also rose 23 per cent to $5.9-billion, which the bank said was driven by acquisition costs, partially offset by the bank reaching its target of $800-million in deal-related cost synergies – savings the bank expected to achieve by streamlining its operations and technology platforms with Bank of the West.
Profit from Canadian personal and commercial banking was $921-million, down 3 per cent from a year earlier as higher expenses offset a rise in revenue. Loan balances rose 5 per cent year over year.
Profit from the bank’s U.S. arm was down 16 per cent to $419-million, which the bank attributed to a weaker U.S. banking environment.
The wealth management division generated $240-million of profit, up 52 per cent on a boost from higher assets under management and the Bank of the West integration.
And capital markets profit fell 19 per cent to $393-million as global markets revenue slumped on lower trading revenue, which included the impact of the federal government’s proposal to eliminate the tax deductibility of certain Canadian dividends.
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