Bank of Montreal, Scotiabank Profit Climbs on Foreign Gains

  • Earnings from U.S., global operations lift quarterly results
  • The Toronto-based lenders trimmed jobs, mostly in Canada

Bank of Nova Scotia and Bank of Montreal, the first Canadian lenders to report fiscal fourth-quarter results, posted higher profit on gains from businesses outside the country.

Bank of Montreal benefited from a stronger greenback relative to the Canadian dollar, which helped lift earnings at its U.S. operations, including wealth management and Chicago-based BMO Harris Bank. Scotiabank, which has operations in 55 countries, said earnings from international banking, which includes wealth management and insurance overseas, surged 53 percent to C$564 million ($424 million).

Scotiabank’s net income for the period ended Oct. 31 jumped 28 percent to C$1.84 billion, or C$1.45 a share, from a year earlier when the lender had restructuring costs, the Toronto-based firm said Tuesday in a statement. Bank of Montreal posted record profit of C$1.21 billion, or C$1.83 a share, and raised its dividend 2.4 percent to 84 cents, the firm said in a separate statement.

“Our Canadian banking and international banking had really good quarters," Scotiabank Chief Financial Officer Sean McGuckin said in a telephone interview. "Where we had a bit of softness was in our global banking and markets," he said, noting "weaker performance in investment banking and equity underwriting."

Adjusted Profit

Scotiabank said its adjusted profit, which only excludes amortization costs, was C$1.46 a share, compared with the C$1.44 average estimate of 15 analysts surveyed by Bloomberg. If changes made to its pension plan, an increase in allowances for sour loans and C$45 million in reorganization costs also are excluded, adjusted earnings per share would be C$1.41, according to data compiled by Bloomberg.

“While the headline came in ahead of expectations, we note that adjusting for non-recurring items, most notably a pension accrual benefit, Scotia’s core earnings were weaker than anticipated," John Aiken, an analyst with Barclays Plc, said in a note to clients. He estimated that adjusted per-share earnings could be 8 cents less than Scotiabank reported.

At Bank of Montreal, there was a “strong headline beat against expectations,” Aiken said in a separate note. “However, quality is up for debate” as results included gains tied to an asset sale and recovery from a legal settlement.

Revenue Rises

Bank of Montreal reported adjusted profit of C$1.90 a share, compared with the C$1.74 average estimate of 16 analysts. Average adjusted profit at Canada’s six biggest banks is expected to increase 4 percent from a year earlier, according to Rob Sedran, a CIBC Capital Markets analyst.

Scotiabank gained 0.6 percent to C$61.23 at 12:27 p.m. in Toronto and Bank of Montreal climbed 1.6 percent to C$78.31. Canadian bank stocks are on pace for their first annual decline since 2011 amid a slowing domestic economy and slumping energy and commodities prices. The eight-company Standard & Poor’s/TSX Commercial Banks Index has fallen 3.7 percent this year, compared with a 9.3 percent gain in 2014. The index’s last annual decline was four years ago, when it slid 2.8 percent.

Scotiabank’s revenue rose 6.6 percent to C$6.13 billion from a year earlier, missing analysts’ estimates. The bank set aside C$551 million for bad loans, down from C$574 million. The firm lowered its medium-term goal for return on equity to 14 percent-plus from 15 percent to 18 percent.

Job Cuts

Global banking and markets had profit of C$325 million, down 14 percent from a year earlier, as investment-banking fees fell by almost half to C$109 million.

Canadian banking profit, which includes domestic wealth management and insurance, rose 19 percent to C$837 million. Scotiabank cut 1,014 full-time positions in its Canadian division since July 31, according to financial disclosures.

Scotiabank had 89,214 employees across the bank as of Oct. 31, a 1.3 percent decline from the end of July. The lender said Oct. 22 it plans to close some Canadian back-office support operations over the next two years as it shifts to digital banking. A year ago, Scotiabank announced 1,500 job cuts -- the most of any Canadian lender in a decade -- and took C$148 million in costs tied to severance.

Bank of Montreal also pared its workforce. The Toronto-based lender trimmed 883 positions -- or 1.9 percent -- since July, giving it a total of 46,353 employees at the end of October. That compares with 46,778 workers a year ago.

Harris Bank

Bank of Montreal’s revenue rose 7.4 percent to C$4.98 billion from a year earlier, beating analysts’ estimates of C$4.69 billion. The lender set aside C$128 million for bad loans, down from C$170 million.

Earnings from its BMO Harris Bank climbed 22 percent to C$207 million, while the unit’s profit in U.S. currency rose 4 percent to $157 million. Canadian personal and commercial banking profit increased 6.5 percent to C$560 million, and earnings from wealth management, which includes insurance, gained 8 percent to C$243 million.

BMO Capital Markets net income climbed 27 percent to C$242 million. Total trading revenue rose 28 percent to C$238 million from a year ago, helping counter a 12 percent slide in investment-banking fees.

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