Bank of Montreal Plunges After Quarterly Profit Misses Analysts' Estimates

Bank of Montreal’s stock plunged the most in 20 months after quarterly profit missed analysts’ estimates for the first time in two years on a decline in trading and investment banking revenue.

Bank of Montreal fell C$3.56, or 6 percent, to C$55.50 by the 4 p.m. close of trading on the Toronto Stock Exchange, the biggest drop since December 2008. Royal Bank of Canada, Bank of Nova Scotia and other Canadian lenders also declined.

Canada’s fourth-biggest bank said in a statement that profit for the third quarter ended July 31 rose 20 percent to C$669 million ($631 million), or C$1.13 a share, compared with C$557 million, or 98 cents, a year earlier.

Excluding one-time items, profit was C$1.14 a share, missing the average estimate of C$1.21 a share from 13 analysts surveyed by Bloomberg. CIBC World Markets analyst Robert Sedran expected C$1.23 on that measure.

Revenue at Toronto-based Bank of Montreal fell 2.4 percent to C$2.91 billion as a decline in investment banking countered a rise in Canadian consumer lending. Trading revenue plunged 64 percent from last year’s record, pulled down by interest-rate trading.

“Capital markets is going to be the problem for the banks,” said Doug Kee, chief investment officer of Leon Frazer & Associates in Toronto, which manages C$1.5 billion including Bank of Montreal. “Trading has fallen off; they haven’t improved any this quarter.”

Lower Provisions

Canada’s six-biggest banks may increase profit before one- time items by an average of 2 percent in the period, the slowest growth in four quarters, according to Macquarie Capital Markets analyst Sumit Malhotra. Lower provisions for credit losses may offset slumping stocks and declining capital markets revenue, he said.

Bank of Montreal, the first bank to report, had C$214 million in provisions for bad loans, down from C$417 million a year earlier.

Canada’s six-biggest banks probably set aside a combined C$1.8 billion for soured loans in the quarter, 27 percent less than a year ago, according to Sedran. The economy expanded 6.1 percent in the first quarter and has recovered almost all the jobs it lost during the recession that ended last year, according to Statistics Canada.

“The Canadian economy continues to do reasonably well,” Sedran said in an interview before earnings. “Better economic performance and falling unemployment are two things that are going to lead to falling loan losses.”

Canadian Banking

The BMO Capital Markets investment-banking unit earned C$130 million, down 58 percent from a year earlier. Trading revenue fell to C$145 million from C$407 million a year ago, as trading of Canadian government securities, interest rate derivatives and corporate debt plunged to C$20 million, from C$288 million.

“BMO’s results set a poor tone for headline earnings this quarter, particularly for the banks with the largest exposure to trading,” such as Royal Bank and Scotiabank, said John Aiken, an analyst at Barclays Capital.

Bank of Montreal’s Canadian consumer banking profit rose 18 percent to C$426 million from a year earlier, while profit from the private-client group, which includes brokerage, insurance, investing services and mutual funds, fell 4.4 percent to C$108 million.

“The domestic bank stuff looked pretty good to me,” Kee said. “Spreads have widened out, revenue growth was good, mortgage growth was still pretty good.”

U.S. Lender

Profit from Bank of Montreal’s Chicago-based Harris consumer bank fell 31 percent to C$40 million, partly hurt by costs of managing impaired loans and expense increases from buying assets of failed lender Amcore Bank in April.

Bank of Montreal bought assets of Rockford, Illinois-based Amcore in a Federal Deposit Insurance Corp.-assisted deal, adding 52 branches in Illinois and Wisconsin. The company expects “fairly significant” integration costs from the transaction in the fourth quarter, Harris Chief Executive Officer Ellen Costello said in a conference call with analysts. The company is cutting about half Amcore’s workforce by the end of the year to reduce costs.

Bank of Montreal CEO William Downe said during the call that he’s interested in buying U.S. bank assets that immediately add to earnings, and deals assisted by the FDIC remain “very attractive.”

Canadian Imperial Bank of Commerce, the country’s fifth- biggest bank, reports results tomorrow, followed by Royal Bank, the largest lender, and Montreal-based National Bank of Canada on Aug. 26. Bank of Nova Scotia, the No. 3 bank, reports Aug. 31, followed by Toronto-Dominion Bank, the No. 2 bank, on Sept. 2.

(Bank of Montreal will hold a conference call to discuss results at 2 p.m. Toronto time at +1-888-789-0089 or +1-416-695- 9753 or at www.bmo.com/investorrelations)

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

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