Bank of Montreal’s U.S. Drive Helped Save It in First Quarter

Bank of Montreal
has made efforts over the years to expand in U.S. banking. It’s a good thing it did.

The Canadian lender’s U.S. business was one of the few bright spots in its fiscal first quarter, delivering higher earnings growth as divisions including capital markets and wealth management saw profits fall. Earnings from U.S. personal and commercial banking, which includes Chicago-based BMO Harris Bank, rose 24 percent to C$310 million ($244 million) from a year earlier, helping the firm post profit that beat analysts’ estimates.

“The constructive economic environment, particularly in the U.S., plays to the strengths of our business mix, with another quarter of increased contribution from our U.S. segment,” Chief Executive Officer Darryl White, 46, who took over the top job in November, said Tuesday in a 


White came into the CEO role with a goal of getting a greater share of earnings from the U.S. The Toronto-based bank has expanded in the U.S. Midwest since its 1984 acquisition of Harris Bank, with more recent growth via takeovers including the 2011 purchase of Milwaukee-based Marshall & Ilsley Corp. that doubled U.S. deposits and branches. U.S. retail banking accounted for 32 percent of the bank’s overall profit for the quarter ended Jan. 31.

‘Low-Quality Beat’

“Compared to peers, we would characterize the result as a low-quality beat,” Canaccord Genuity Group Inc. analyst Scott Chan said in a note. “BMO’s results are arguably the weakest among peers thus far.”

Bank of Montreal shares fell 0.8 percent to C$98.74 at 11:32 a.m. in Toronto, the most since Feb. 9. The stock has slid 1.8 percent this year.

Profit from Canadian banking, the lender’s biggest division, fell 13 percent to C$647 million from a year earlier, when the firm had a C$168 million gain from selling a U.S. payments business. Excluding that gain and other one-time items, profit rose 9 percent, Chief Financial Officer Tom Flynn said in a phone interview.

“Canadian banking is doing well,” Flynn said, citing growth in commercial lending and deposits. “Revenue growth was 6 percent — that’s the best number that we’ve had in the last five quarters.”

Mortgage Rules

Flynn sees “a little bit of moderation” in Canadian mortgage lending given tougher eligibility rules imposed in January. The changes may reduce mortgage originations by 5 percent to 10 percent, he said, though it’s “early days” in determining the impact.

Here’s a summary of its first-quarter results:

  • Net income fell 35 percent to C$973 million, or C$1.43 a share, from C$1.49 billion, or C$2.22, a year earlier, according to the statement. Adjusted earnings, which exclude such one-time costs as a C$425 million charge tied to U.S tax changes, were C$2.12 a share, the bank said. That exceeded the C$2.06

    average estimate
    of 14 analysts surveyed by Bloomberg.
  • Total revenue rose 5.1 percent to C$5.68 billion.
  • Wealth-management profit fell 1.1 percent to C$266 million, pulled down by insurance.
  • BMO Capital Markets’ earnings fell 26 percent to C$271 million from a year earlier. Total trading revenue was C$434 million, a 14 percent decline from last year’s record results.

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