Bank of Montreal Profit Rises 41% on Investment Banking

Bank of Montreal, Canada’s fourth-largest lender, said quarterly profit rose 41 percent, topping analysts’ estimates, on gains from investment banking and trading.

Net income for the fourth quarter ended Oct. 31 advanced to C$1.08 billion ($1.09 billion), or C$1.59 a share, from C$768 million, or C$1.11, a year earlier, the Toronto-based lender said today in a statement. Revenue rose 9.3 percent to C$4.18 billion.

Bank of Montreal joined Royal Bank of Canada in reporting earnings that were bolstered by capital markets. Bank of Montreal benefited from higher fees from advising on takeovers and arranging stock sales, and from a surge in trading revenue, which helped compensate for a slowdown in consumer lending.

“Capital markets are getting stronger,” Arthur Salzer, who manages C$225 million at Northland Wealth Management in Toronto, including Bank of Montreal shares, said in a telephone interview. “Given the weakness in Canada, it’s probably a little unexpected to have improvements year over year.”

Adjusted earnings were C$1.65 a share, beating the C$1.43 estimate of 16 analysts surveyed by Bloomberg News, with the fastest profit growth in 11 quarters.

Bank of Montreal rose 0.6 percent to C$59.63 at 4 p.m. in Toronto.

Bad Loans

The lender set aside C$192 million for bad loans, down 47 percent from a year earlier. The bank pared its workforce by 322 employees from the third quarter, with most of the cuts in Canada.

Canadian consumer-banking profit was unchanged at C$439 million while U.S. banking profit from its BMO Harris Bank unit fell 16 percent to C$130 million as net interest margins narrowed, the lender said.

“Earnings growth in Canada has slowed appreciably and we expect headwinds to intensify in fiscal 2013,” Peter Routledge, an analyst with National Bank Financial, said in a note.

Bank of Montreal is putting more emphasis on deposit growth over loan growth and on commercial banking in Canada, as well as its expanded U.S. operations, in response to a slowdown, Chief Executive Officer William Downe said in a phone interview.

U.S. Differentiator

“The levers that we have in Canada will allow us to perform better on a relative basis in the next couple of years than we have in the last couple of years,” Downe said. “The differentiator is going to be the U.S. business.”

BMO Capital Markets profit more than doubled to C$293 million on a revenue surge in revenue from investment banking and trading. Underwriting and advisory fees rose 46 percent to C$111 million. Trading revenue soared to C$354 million from C$3 million a year earlier, when the firm recorded losses from structured-credit activities and hedging.

Profit at the private-client group, which includes insurance and mutual funds, jumped 21 percent to C$166 million.

Bank of Montreal had record profit of C$4.19 billion, or C$6.15 a share, for the fiscal year ended Oct. 31, up 35 percent from C$3.11 billion, or C$4.84, a year earlier.

The lender achieved three of four medium-term goals for the year, including adjusted earnings-per-share growth, return-on-equity and capital ratio levels. The bank will meet its target for operating leverage in 2013 and medium-term objectives will remain unchanged, Downe said in a conference call with investors.

Fiscal Cliff

Downe said he expects an agreement by U.S. lawmakers on taxes and spending will lift business confidence and accelerate investment and hiring, sparking job growth and stronger consumer spending that will also help Canada.

“Assuming lawmakers do the right thing, and I believe they will, the U.S. economy should strengthen through next year, pulling Canada’s economy along with it,” he said.

Canadian Western Bank, the country’s eighth-largest lender, missed analysts’ estimates today after reporting fourth-quarter profit that rose 20 percent to C$43 million, or 55 cents a share, from C$35.9 million, or 47 cents, a year earlier. The bank raised its quarterly dividend 6 percent to 17 cents a share, according to a statement from the Edmonton, Alberta-based firm.

Royal Bank, the nation’s largest lender, said on Nov. 29 that profit rose 22 percent to C$1.91 billion on higher fixed-income trading, beating analysts’ estimates.

Toronto-Dominion Bank, Canada’s second-largest lender, and Canadian Imperial Bank of Commerce, the fifth-biggest, as well as No. 6-ranked National Bank of Canada report results on Dec. 6. Scotiabank, the No. 3 lender, reports Dec. 7.

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