BMO Leads Canada Bank Stocks Down as Profit Misses Estimates

Bank of Montreal led Canadian lenders lower in Toronto trading after posting second-quarter results that missed analysts’ estimates.

Bank of Montreal fell 1.9 percent to C$62.50 at 4 p.m., the biggest drop since June 2012, making it the worst performer today on the eight-company Standard & Poor’s/TSX Commercial Banks Index. Bank of Nova Scotia, Royal Bank of Canada and the country’s three other big lenders also declined.

Profit for the period ended April 30 slid 5.3 percent to C$975 million ($940 million), or C$1.42 a share, from C$1.03 billion, or C$1.51, a year earlier, Toronto-based Bank of Montreal said today in a statement. Revenue declined 0.4 percent to C$3.94 billion.

Canada’s fourth-largest bank recorded C$50 million of expenses tied to its integration of Wisconsin lender Marshall & Ilsley Corp., which it bought in July 2011 for C$4.1 billion, and an C$82 million restructuring charge tied to cost-cutting. The bank also faced lower earnings from Canadian lending and insurance, according to the statement.

“We view the results as a noisy mess,” Robert Sedran, an analyst with CIBC World Markets, said in a note to investors. “The Canadian personal and commercial-banking segment’s earnings and revenue growth trailed peers so far this quarter.”

Adjusted earnings, which exclude some items, were C$1.46 a share, the company said, missing the C$1.48 average estimate of 15 analysts surveyed by Bloomberg. Bank of Montreal joins Toronto-Dominion Bank and Scotiabank in posting results that missed estimates.

Canadian Banking

Canadian consumer-banking profit fell 0.7 percent to C$430 million from a year earlier on lower net interest margins and higher expenses, Bank of Montreal said. Net interest margin is the difference between what a bank pays for deposits and charges for loans.

“The slowing in Canadian lending is something we’ve expected,” John Kinsey, who helps manage about C$1 billion at Caldwell Securities Ltd. in Toronto, said in an interview. “For some time all of the banks have said it’s going to be tough to grow in Canada.”

Profit from Bank of Montreal’s Chicago-based BMO Harris Bank consumer-lending unit rose 9.2 percent to C$155 million, the company said.

“Our feeling of optimism around economic growth in the United States, the prospects for Canada, the stabilization of the consumer and the plateauing of consumer debt in Canada is a good thing,” Chief Executive Officer William Downe, 61, said in a telephone interview. “We feel good about personal and commercial banking on both sides of the border.”

Capital Markets

Earnings from BMO Capital Markets, the lender’s investment-banking unit, climbed 18 percent to C$275 million. Profit from the private-client group, which includes insurance and mutual funds, fell 4.1 percent to C$141 million, the bank said.

The lender set aside C$145 million for bad loans, down from C$195 million a year earlier.

Bank of Montreal is “taking concrete steps to be more efficient,” Downe said on a call with investors. “The restructuring charge this quarter is part of an active, ongoing commitment to align non-interest expense with the current and future business environment.”

Downe said he isn’t seeing takeover opportunities in the U.S. Midwest, where the lender has had a presence since buying Harris Bank for C$718 million in 1984.

“I have not seen any change in the willingness of people to even talk seriously about transactions,” Downe said. “The expectation is things are going to get better and sellers are on the sideline.”

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