Bank of Montreal, Scotiabank Boost Dividends

Bank of Montreal, Scotiabank Boost Payouts on Higher Earnings
Bank of Montreal, Canada’s fourth-biggest bank, raised its dividend for the first time in five years after profit rose 37 percent to C$970 million ($981 million), or C$1.42 a share. Photographer: Brent Lewin/Bloomberg

Bank of Montreal and Bank of Nova Scotia increased their dividends after posting third-quarter profit that beat analysts’ estimates on higher consumer lending.

Bank of Montreal, Canada’s fourth-biggest bank, raised its dividend for the first time in five years after profit rose 37 percent to C$970 million ($981 million), or C$1.42 a share, in the quarter ending July 31. Scotiabank had record profit of C$2.05 billion, or C$1.69 a share, on a gain from selling its Toronto headquarters.

“The capital ratios have improved to a degree that the boards feel comfortable” raising dividends, said Bob Decker of Aurion Capital, which manages about C$6 billion, including Bank of Montreal and Scotiabank shares. “It’s not like this is about the business prospects suddenly getting better for these companies.”

Bank of Montreal, the last Canadian lender to boost its payout since the financial crisis, raised its dividend 2.9 percent to 72 cents a share. The bank also lowered its payout range to between 40 percent and 50 percent of earnings from 45 percent to 55 percent. Scotiabank, Canada’s third-largest lender, raised its payout 3.6 percent to 57 cents a share.

Bank of Montreal rose 0.4 percent to C$57.93 at 4 p.m. in Toronto. Scotiabank fell 0.1 percent to C$52.89.

‘Dead Money’

The two banks raised their dividends six days after Bank of Canada Governor Mark Carney said he wanted corporations to invest “dead money” from record cash reserves or pay it in dividends to shareholders.

Bank of Montreal Chief Executive Officer Bill Downe said in a conference call that the dividend increase reflects “our strong capital position, the success of our business strategies and our confidence in our continued ability to generate sustained earnings growth.”

The lowered payout range is “consistent” with the lender’s objective of maintaining flexibility to pursue growth opportunities while acknowledging higher capital requirements set by the Basel Committee on Banking Supervision, Downe said.

Bank of Montreal said it had profit excluding items of C$1.49 a share, beating the C$1.38-a-share average estimate of 15 analysts surveyed by Bloomberg.

Wisconsin Takeover

Profit was boosted by the July 2011 takeover of Marshall & Ilsley Corp., the Wisconsin lender Bank of Montreal bought for C$4.1 billion in the largest acquisition in its 195-year history. The lender is integrating M&I into its Chicago-based BMO Harris Bank consumer-lending unit.

Bank of Montreal set aside C$237 million for bad loans, up 3 percent from a year earlier.

Canadian consumer-banking profit rose 2.3 percent to C$453 million and profit from BMO Harris Bank rose 43 percent to C$129 million after adding M&I contributions.

The BMO Capital Markets investment-banking unit had profit of C$232 million, 14 percent lower than a year earlier as underwriting and advisory fees fell 13 percent to C$123 million. Trading revenue rose 38 percent to C$213 million, led by interest-rate contracts and commodities.

The private-client group, which includes insurance and mutual funds, had profit of C$109 million, up 4.8 percent from a year ago.

Scotiabank Gain

Scotiabank recorded an after-tax gain of C$614 million for the sale of its Scotia Plaza office building in Toronto. Excluding one-time items such as the real estate sale, Scotiabank said it earned C$1.22 a share. That compares with the C$1.19-a-share average estimate of 15 analysts surveyed by Bloomberg News.

Domestic banking earnings rose 22 percent to C$521 million because of asset and deposit growth. International profit surged 29 percent to C$442 million. Scotiabank has operations in 50 countries and this month announced acquisitions in Colombia and Mexico.

“There’s no question” that growth will be higher in those regions than in North America, Tom Lewandowski, an analyst at Edward Jones & Co. in St. Louis, said in an interview before results. “I think it’s one of the competitive advantages of Bank of Nova Scotia.”

Wealth Management

Wealth-management profit climbed 9.2 percent to C$284 million and investment-banking net income gained 31 percent to C$398 million. Scotiabank set aside C$402 million for soured loans, compared with C$250 million a year earlier.

Scotiabank’s quarterly profit was the second-highest for a Canadian bank, trailing Toronto-Dominion Bank’s C$2.31 billion in the first quarter of 2006. Scotiabank said today it expects to meet its 2012 financial goals, including earnings per share growth of between 5 percent and 10 percent.

Royal Bank of Canada, the country’s largest lender; Toronto-Dominion, the No. 2 lender; Canadian Imperial Bank of Commerce, the fifth-biggest; and National Bank of Canada, the sixth-largest, report Aug. 30.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE