Bank of Montreal Raises Dividend as Profit Beats Estimate

Bank of Montreal reported first- quarter profit that beat analysts’ estimates as higher earnings from investment banking and the U.S. offset a slowdown in consumer lending in Canada. The bank raised its dividend 2.8 percent.

Net income for the period ended Jan. 31 fell 5.5 percent to C$1.05 billion ($1.02 billion), or C$1.53 a share, from C$1.11 billion, or C$1.63 a year earlier, the Toronto-based lender said today in a statement. That’s the first profit decline since the second quarter of 2009, according to data compiled by Bloomberg. Revenue fell 0.9 percent to C$4.08 billion.

Bank of Montreal’s BMO Capital Markets unit posted a 38 percent jump in profit, outpacing the 3.9 percent rise in Canadian consumer lending. Higher fees from advising on mergers and arranging stock sales led to the investment-banking gains for Canada’s fourth-biggest lender. Earnings from the bank’s private client business also surged.

“Canadian consumer lending is the weakest part of their franchise,” Bob Decker of Aurion Capital Management Inc. in Toronto, which manages C$6 billion, said in an interview. “For wealth management and capital markets to beat is important for them, as an offset.”

Bank of Montreal (BMO), the first Canadian lender to report quarterly results, had earnings excluding some items of C$1.52 a share, beating the C$1.48 a share average estimate of 16 analysts surveyed by Bloomberg News.

Bank of Montreal climbed 1.3 percent to C$63.75 at 4 p.m. in Toronto, leading the rise among Canada’s banks.

Retail Banking

Profit was driven by lower than expected provisions for credit losses, and higher revenue in private client and investment banking, Andre-Philippe Hardy, an analyst for RBC Capital Markets, said today in a note.

“Revenue growth in retail banking businesses was weak, as expected,” he wrote.

Profit was hurt by a 4.4 percent decline in net interest income and higher provisions for bad loans. The country’s banks face a consumer lending slowdown as Canadians struggle with record debt levels and a cooling housing market.

Net interest income fell to C$2.22 billion, from C$2.32 billion a year earlier. The lender set aside C$178 million for bad loans, up 26 percent from C$141 million a year earlier.

Canadian consumer-banking profit climbed to C$458 million, its slowest year-over-year increase in four quarters. U.S. banking profit from its Chicago-based BMO Harris Bank unit rose 14 percent to C$182 million, from C$159 million on lower costs and after setting aside less for bad loans.

Top Arranger

Profit from BMO Capital Markets rose to C$310 million, as fees from arranging stock sales and advising on takeovers more than doubled to C$166 million. The firm was the top arranger of Canadian equity financings in the quarter, managing 17 deals valued at $1.59 billion, according to data compiled by Bloomberg.

BMO arranged the C$134.6 million initial public offering for Agellan Commercial Real Estate Investment Trust, Canada’s first IPO of 2013, and helped oversee the C$800 million financing for Crescent Point Energy Corp. in November.

The firm advised on $15 billion of takeovers globally that closed in the quarter, including advising Progress Energy Resources Corp. on December’s C$5.2 billion takeover by Malaysia’s Petroliam Nasional Bhd. That compares with $11.7 billion a year earlier.

Profit at the bank’s private-client group, which includes insurance and mutual funds, rose 56 percent to C$163 million, from C$105 million a year earlier.

Dividend Increase

Bank of Montreal raised its quarterly dividend to 74 cents a share, from 72 cents, its first increase since August. The bank’s dividend yield is 4.7 percent.

“Banks need to be looking at dividends as a value creation driver for their stocks,” Decker said. “BMO is right in the sweet spot, so the stock should perform well.”

Canadian six-biggest banks are expected to post a 6.9 percent increase in per-share profit excluding some items, according to Cormark Securities Inc. analyst Darko Mihelic.

Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada report results on Feb. 28. Bank of Nova Scotia reports on March 5.

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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