Bank of Montreal Earnings Rise 19% on Investment Banking

Bank of Montreal Profit Rises 19%
The Bank of Montreal's profit has risen nine straight quarters, the longest current streak among Canada’s six biggest lenders. Photographer: Brent Lewin/Bloomberg

Bank of Montreal, the first Canadian bank to report third-quarter results, said profit rose 19 percent on higher investment-banking earnings, beating analysts’ estimates.

Net income climbed to C$793 million ($803 million), or C$1.27 a share, from C$669 million, or C$1.13, for the period ended July 31, the Toronto-based bank said today in a statement. The bank’s profit has risen nine straight quarters, the longest current streak among Canada’s six biggest lenders.

Canada’s eight-largest banks may increase third-quarter profit before one-time items by 14 percent on average, driven by lower loan losses, according to Kevin Choquette, an analyst at Scotia Capital. Low interest rates, job growth and confidence in the economy fueled spending in the period, benefiting banks.

“The Canadian banks are still in very good shape, and we can probably expect more of these types of results,” Doug Davis, vice chairman of Davis-Rea Ltd. in Toronto, which manages C$460 million in assets including bank shares, said in an interview. “This is a very positive early release and therefore I think all the banks will do quite well in the quarter.”

Bank of Montreal, the country’s fourth-biggest bank by assets, said it had adjusted profit of C$1.36 a share, beating the C$1.31 average estimate of 15 analysts surveyed by Bloomberg.

Share Performance

Bank of Montreal rose C$2.45, or 4.3 percent, to C$59.80 at 4 p.m. trading on the Toronto Stock Exchange, the biggest increase in two years, lifting other Canadian banks.

“BMO’s results provides some optimism for the sector as it appears that sentiment may have been too cautious heading into the quarter,” Barclays Capital analyst John Aiken said today in a note.

Revenue rose 13 percent to C$3.27 billion from C$2.91 billion, the bank said. Loan-loss provisions fell 19 percent to C$174 million.

Bank of Canada Governor Mark Carney has kept the central bank’s benchmark interest rate at 1 percent since September to fuel an economic recovery. Economic growth this year will be 2.8 percent, the central bank said on July 19, compared with 1.8 percent in the U.S. Canada’s jobless rate fell to its lowest level in more than two years in July, and home prices and sales rose from a year earlier.

Bank of Montreal’s Canadian consumer-banking profit rose 1.9 percent to C$432 million, the bank said. Profit from its U.S. consumer lender, BMO Harris Bank, rose 77 percent to C$92 million, after including 26 days of earnings from Wisconsin lender Marshall & Ilsley Corp.

Marshall & Ilsley

The company completed a C$4.1 billion takeover of Marshall & Ilsley on July 5, doubling the U.S. branches and deposits of its Chicago-based business. The bank now has more branches in Chicago than in Toronto.

M&I added C$117 million of revenue and $32 million profit excluding C$53 million of integration costs to the results, the lender said. Bank of Montreal estimates total integration and restructuring costs will be about C$600 million.

Chief Executive Officer William Downe said today in an interview that he sees some evidence of growth in the U.S. economy, even though he pegs the odds of a downturn at 50 percent.

“There are underlying areas of strength that are being overlooked,” Downe said. “I do think there is good strength in the commercial sector; profits have been good.”

Higher Trading Revenue

The bank’s BMO Capital Markets investment-banking business had profit of C$279 million, more than double a year earlier, driven by higher trading revenue and growth in fees from advising on takeovers and arranging stock sales.

BMO Capital Markets was the top adviser for Canadian acquisitions in the quarter, arranging 13 deals worth $14.6 billion, including Cliff Natural Resources Inc.’s C$4.43 billion combination with Consolidated Thompson Iron Mines Ltd.

The value of completed takeovers involving a Canadian company surged 70 percent to $69.6 billion in the quarter, according to Bloomberg data. Equity financings in Canada rose 32 percent to $10.7 billion in the period, helping boost fee revenue for the country’s investment banks.

Trading revenue more than quadrupled to C$221 million, from C$53 million in the year-earlier period, driven by trading of equities, Canadian government securities and interest-rate derivatives.

Downe, 59, said during a conference call that he expects “moderation” of capital markets earnings in the near term, given market volatility and economic uncertainty.

‘Deals Come to Market’

“There’s a lot of M&A transactions to be done and a lot of debt and equity raising, but I think most corporations are going to sit back and wait,” Downe said in an interview. “The bright side is when we do see some stability, you’re probably going to see a lot of deals come to market.”

Bank of Montreal said it had profit of C$120 million on its private-client group, which includes insurance and mutual funds, up 14 percent from the year-earlier period.

National Bank of Canada is scheduled to report results on Aug. 25, followed a day later by Royal Bank of Canada, the country’s biggest bank. Bank of Nova Scotia, the third-largest, reports Aug. 30. Canadian Imperial Bank of Commerce, the fifth-largest, reports Aug. 31 followed by Toronto-Dominion Bank, Canada’s No. 2 lender, on Sept. 1.

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