Bank of Montreal Posts Record Profit on Boost from U.S. Consumer Banking

Bank of Montreal, the first Canadian bank to report quarterly results, beat analysts’ estimates as profit soared 34 percent after its takeover of a Wisconsin lender helped lift U.S. consumer-banking earnings.

Net income rose to a record C$1.11 billion ($1.12 billion), or C$1.63 a share, in the first quarter ending Jan. 31, from C$825 million, or C$1.34, a year earlier, the Toronto-based bank said today in a statement. Revenue increased 19 percent to C$4.12 billion.

Bank of Montreal (BMO), Canada’s fourth-largest lender, said it had profit excluding items of C$1.42 a share, beating the C$1.36 estimate of 15 analysts surveyed by Bloomberg News. The stock rose about 1 percent to C$58.56 at in Toronto trading.

Net income increased on earnings from Marshall & Ilsley Corp., the Milwaukee-based bank that Bank of Montreal bought in July for C$4.1 billion, and on less money set aside for bad loans. Loan-loss provisions fell 56 percent from a year earlier to C$141 million.

“Bank of Montreal came through here,” Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier Inc., said in a telephone interview from Toronto. The firm oversees about C$4 billion. “This vindicates their strategy of moving down into the U.S. market.”

Canadian consumer-banking profit fell 6.5 percent to C$446 million, as volume growth was hurt by declining margins, or the difference between what the bank charges for loans and what it pays in deposits. The net interest margin on average assets was 2.8 percent, down from 2.91 percent in the year earlier.

U.S. Franchise

Profit from BMO Harris Bank, the Chicago-based U.S. consumer lender, more than doubled to C$137 million from C$54 million after adding earnings from Marshall & Ilsley. The acquisition doubled the number of U.S. branches and deposits of BMO Harris Bank, giving Bank of Montreal more branches in Chicago than Toronto.

“The U.S. economy is moving up, ours is moving down,” Nakamoto said. “Those that have more exposure to U.S. banking for the next several years are probably going to do fairly well versus those that have very little U.S. banking exposure.”

The bank’s BMO Capital Markets investment-banking business had profit of C$198 million, down 24 percent from a year earlier. Revenue from underwriting and advisory fees fell 49 percent to C$78 million. Trading revenue rose 25 percent to C$378 million from a year earlier after adding a benefit from structured credit activities under new accounting rules.

Insurance Hurt

The bank recorded a C$46 million cost to restructure its BMO Capital Markets business, part of what the company called a “broader effort under way to improve productivity.” BMO last week cut jobs at its North American capital markets business.

The lender’s private-client group, which includes insurance and mutual funds, had profit of C$105 million, down 27 percent from a year earlier, on unfavorable movements in long-term interest rates that hurt insurance results.

“While BMO came in ahead of expectations, we note that it was largely the result of lower than anticipated provisions,” John Aiken, an analyst with Barclays Capital in Toronto, said today in a note. “Overall, it was a solid, if uninspiring start to the earnings season.”

Canada’s six-biggest banks will post a 3 percent profit decline excluding items for the quarter, according to John Reucassel, an analyst with BMO Capital Markets.

Investment-Banking Fees

Canadian banks may earn less from investment-banking fees, as takeovers and stock sales slowed from a year earlier, according to analysts. Canadian equity financings fell 45 percent to $6 billion in the three-month period and takeovers involving Canadian firms declined 19 percent to $37.2 billion, according to data compiled by Bloomberg.

This is the first quarter that Canada’s banks report results under the International Financial Reporting Standards accounting rules.

Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada are scheduled to report results on March 1, followed by Bank of Nova Scotia on March 6 and Canadian Imperial Bank of Commerce on March 8.

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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