Nov. 28 (Bloomberg) -- Bank of Montreal, Canada's fourth- biggest bank, promoted William Downe to chief executive officer, replacing Anthony Comper, who will step down in March. The stock had its biggest decline in 15 months after profit at the three main business units fell.

Comper, 61, said earlier this year he'd retire by April, ending his tenure as the longest serving chief executive among Canada's six largest banks. That fueled speculation that Downe, the chief operating officer, would be the successor.

Downe's challenges when he becomes CEO on March 1 will be to reverse a slump in the U.S. and to regain market share in Canada from bigger rivals Royal Bank of Canada and Toronto- Dominion Bank, said Tom Kersting, an analyst at Edward Jones. The bank said today that profit from U.S. consumer banking fell to C$23 million ($20 million), the lowest in 10 quarters.

``The U.S. hasn't been a particularly bright spot for BMO, and market conditions are not getting any easier,'' said Kersting in an interview today from St. Louis.

Shares of Toronto-based Bank of Montreal fell C$2.29, or 3.2 percent, to C$69.22 at 4:10 p.m. on the Toronto Stock Exchange, the biggest decline since Aug. 4, 2005. The stock has risen 6.5 percent this year, the worst performer among Canada's five biggest banks. Other bank shares declined, with Canadian Imperial Bank of Commerce dropping 2.3 percent and National Bank of Canada down 2.4 percent.

First Results

Bank of Montreal, the first Canadian lender to report fourth-quarter earnings, said in a statement that net income rose 4.8 percent to C$696 million, or C$1.35 a share, from C$664 million, or C$1.28 a year earlier.

Robert Wessel, an analyst at National Bank Financial in Toronto, said the bank earned C$1.33 a share before one-time items, topping his estimate of C$1.24 a share.

The bank benefited from lower taxes and a decline in provisions for bad loans. That helped offset a drop in profit from the investment banking, personal and commercial banking and the private client group units.

``We're clearly not pleased with the softer operating performance in the fourth quarter,'' Downe said today in a conference call with analysts.

Canadian consumer banking profit for the period ended Oct. 31 rose 1.2 percent to C$244 million, and profit from its U.S. operations fell 32 percent. Overall profit for personal and commercial banking declined 3.7 percent to C$294 million. The bank said lending margins narrowed as interest rates rose and competition increased for products such as mortgages. The bank also lost market share for consumer deposits.

Mortgages

The bank said it backed off on ``aggressive pricing'' for its mortgages and high-interest savings accounts, which hurt revenue in these areas. The bank saw stronger growth in consumer loans and credit cards, said Frank Techar, head of Canadian consumer banking.

Profit from investment banking fell 18 percent to C$186 million, as trading revenue from commodities and foreign exchange declined 59 percent to C$69 million. Revenue from underwriting and advisory fees rose 2.9 percent to C$104 million.

``You didn't see any one business unit that shined,'' said Kersting, who rates Bank of Montreal stock a ``hold'' and doesn't own any. ``I think people are starting to get concerned about the sustainability of earnings.''

Trading

Revenue fell because of a decline in commodity trading, Genuity Capital Markets analyst Mario Mendonca said today in a note. Genuity said in October that falling natural-gas prices and the collapse of hedge-fund manager Amaranth Advisors LLC, a Bank of Montreal client that lost $6.6 billion betting on the commodity, would hurt the bank's trading businesses.

The bank met four of its five financial targets in Comper's final year as CEO, after he took over the top spot in 1999. Earnings per share rose 12 percent on the year to C$5.15, topping the bank's target of 5 percent to 10 percent growth. Bank of Montreal aims to increase profit by 5 percent to 10 percent again next year, and is targeting the ``low end'' of that range, Chief Financial Officer Karen Maidment said on the conference call.

Lending to small business, increasing mortgages and boosting consumer banking fees will be priorities for 2007, Downe said on the call. He also said he expects ``double-digit'' loan growth in the U.S. next year.

Record Profit

The bank surpassed its earnings growth target ``with the benefit of extremely low taxes that are unlikely to be sustainable, suggesting poor quality,'' said Canadian Imperial Bank of Commerce analyst Darko Mihelic, who added that this was ``an extremely weak result.''

The bank expects a tax rate of 25 percent to 28 percent for 2007, Maidment said in the call.

Bank of Montreal said profit for fiscal 2006 rose to a record C$2.66 billion, up from C$2.4 billion, or C$4.63 a share, in the previous year. Revenue for the year rose 1.5 percent to C$10.1 billion.

Comper, who joined Bank of Montreal in 1967, will remain with the bank as an adviser until April 24, his 62nd birthday, the bank said.

Downe, 54, was promoted to the new position of COO in February. He's been with the bank for about 23 years, starting as a credit analyst. He became head of the BMO Nesbitt Burns investment-banking arm in May 2001 and began overseeing the U.S. operations in September 2002.

No Change

Jason Bilodeau, an analyst at UBS Canada, said he doesn't expect Downe to ``deviate'' from Comper's strategy.

``There's not going to be a radical shift in direction,'' Bilodeau said in an interview before the announcement. ``He has spent a lot of time talking about the domestic retail business and their need to be more effective with their retail customers in Canada.''

Downe completed his Bachelor of Arts degree from Wilfrid Laurier University before graduating from the University of Toronto with a Master of Business Administration in 1978, according to Bank of Montreal's Web site. Comper also attended University of Toronto, obtaining a bachelor's degree in English.

Over the last seven years, Bank of Montreal's total shareholder return, including dividends, has been 19 percent a year, the second-worst performer among the six biggest lenders over that period.

Comper indicated in March at the bank's annual meeting of shareholders in Calgary that he could step down within the next year. The next annual meeting is on March 1 in Toronto.

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net. Doug Alexander in Toronto at daalexander3@bloomberg.net

Last Updated: November 28, 2006 16:44 EST