Bank of Montreal Falls on Profit Post: Toronto Mover

Bank of Montreal, Canada’s fourth-largest lender by assets, fell the most in almost three years after profit excluding an accounting gain missed analysts’ estimates and earnings from U.S. operations declined.

Bank of Montreal (BMO), the first Canadian lender to report fiscal fourth-quarter results, slid 4.5 percent to C$70.25 at 4 p.m. in Toronto, its biggest decline since Dec. 17, 2010. Net income for the period ended Oct. 31 was C$1.09 billion ($1.02 billion), or C$1.62 a share, little changed from C$1.08 billion, or C$1.59, a year earlier, the Toronto-based company said today in a statement.

“Factors contributing to the underperformance were pervasive, spanning domestic banking, capital markets and U.S. personal-and-commercial banking segments,” said Brad Smith, an analyst with Stonecap Securities Inc. in Toronto.

Bank of Montreal almost doubled its wealth-management earnings from the same quarter a year ago, helped by a C$121 million securities gain from an accounting change. Profit from the lender’s U.S. consumer bank sunk to its lowest in two years, while earnings from its capital markets unit dropped 27 percent as revenue from trading declined.

Adjusted earnings, which exclude some items, were C$1.64 a share, the bank said, beating the C$1.57 average estimate of 14 analysts surveyed by Bloomberg. Earnings missed estimates after adjusting for the securities gain, Smith said.

‘Weak Market’

“Taking in the security gains, they were below expectations, so I can see the rationale why the stock is down,” said Ian Nakamoto, director of research with MacDougall, MacDougall & MacTier Inc. in Toronto, which manages about C$4.7 billion including bank shares. “You’ve got a weak market and also you’ve got a bank that missed its earnings.”

Bank of Montreal led the decline of Canada’s six-biggest banks on the Toronto Stock Exchange. The Standard & Poor’s/TSX Composite Commercial Banks Index fell 1.7 percent, its largest drop since June.

The lender posted a record full-year profit of C$4.25 billion, or C$6.26 a share, up 1.4 percent from a year earlier, the firm said.

“It will take two or three or four days for the market to fully digest what the bank achieved in 2013,” Chief Executive Officer William Downe, 61, said in a telephone interview. “We’re going into 2014 with good momentum in the businesses, very strong capital and we think some significant opportunities.”

Consumer Banking

Bank of Montreal, which raised its dividend 2.7 percent to 76 cents a share, said revenue was little changed at C$4.19 billion in the fourth quarter. The lender set aside C$189 million for bad loans, down from C$192 million a year earlier.

Profit at the firm’s private-client group, which includes insurance and mutual funds, climbed 90 percent to C$312 million from a year earlier, aided by the securities gain and rising stock markets that lifted assets under management.

Canadian consumer-banking profit rose 6.1 percent to C$469 million from a year earlier, according to the statement. Earnings from its Chicago-based BMO Harris Bank fell 24 percent to C$106 million, the lowest since Bank of Montreal doubled its U.S. deposits and branches through a C$4.1 billion takeover of Wisconsin-based lender Marshall & Ilsley Corp. in July 2011.

Earnings from the BMO Capital Markets investment-banking unit fell to C$229 million from C$314 million a year earlier. Revenue from trading slid by a third to C$235 million, led by declines in equities, interest-rate derivatives and Canadian-government securities trading.

Share Buyback

The bank said separately today that it plans to buy back as many as 15 million shares from Feb. 1, 2014 to Jan. 31, 2015.

The country’s six biggest banks will post average per-share profit growth of 8.3 percent after excluding items, according to Robert Sedran, an analyst with Canadian Imperial Bank of Commerce.

“Wealth management is going to be driving earnings,” Nakamoto said. “Canadian personal and commercial banking is going to continue to do well, but the upside surprise in my view is going to be from wealth management.”

National Bank of Canada, the sixth-largest lender, reports results tomorrow, followed by Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce on Dec. 5. Bank of Nova Scotia, the third-largest lender, reports the next day.

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

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Peter Eichenbaum at peichenbaum@bloomberg.net

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