BMO, Scotiabank Beat Estimates on Increased Lending

Bank of Nova Scotia and Bank of Montreal, Canada’s first two lenders to report third-quarter results, beat analysts’ estimates after posting profit fueled by record results in Canadian banking.

Scotiabank said today that net income for the period ended July 31 fell 14 percent to C$1.77 billion ($1.68 billion), or C$1.37 a share, from C$2.05 billion, or C$1.69, a year earlier when the company had a C$614 million one-time gain from selling its Scotia Plaza building in Toronto. Bank of Montreal’s profit rose 17 percent to a record C$1.14 billion, or C$1.68 a share, from a year earlier, the Toronto-based firm said in a statement.

Both banks produced profit bolstered by record consumer lending and wealth-management gains. Scotiabank’s Canadian consumer-lending business was aided by its C$3.1 billion takeover of ING Groep NV’s Canadian business in November, which added about 1.8 million customers. The lenders also set aside less money for bad loans.

“It’s a steady-as-she-goes quarter,” Bob Decker, a fund manager with Aurion Capital Management in Toronto, which manages about C$6 billion including bank shares. “It’s a Goldilocks environment for bankers when loan-loss provisions are sustainably low like this and they can focus on costs and delivering services.”

Credit Provisions

Scotiabank, Canada’s third-largest lender by assets, set aside C$314 million for bad loans, down from C$402 million a year earlier. Bank of Montreal, the fourth-largest lender, reserved C$77 million in credit provisions, down from C$237 million a year ago.

“Our customers in Canada are behaving as expected,” Scotiabank Chief Executive Officer Richard Waugh, 65, said in a conference call after earnings were released. “Growth is moderating and all credit metrics -- delinquency, formations and loan losses -- are essentially flat to down.”

Scotiabank fell 1.7 percent to C$57.71 at 4 p.m. in Toronto, while Bank of Montreal rose 0.4 percent to C$66.05. The shares have climbed 0.4 percent and 8.5 percent this year, respectively, compared with the 4.5 percent advance of the eight-company Standard & Poor’s/TSX Commercial Banks Index.

Excluding some items, Scotiabank’s profit was C$1.32 a share, the Toronto-based lender said in a statement, beating the C$1.31 average estimate of 13 analysts surveyed by Bloomberg. Revenue was little changed at C$5.52 billion. The company raised its quarterly dividend 3.3 percent to 62 cents a share.

ING Acquisition

Profit from Scotiabank’s Canadian consumer-lending business rose 13 percent to a record C$590 million, lifted by its ING acquisition, while earnings from international banking climbed 12 percent to C$494 million, the lender said.

Wealth-management and insurance profit rose 15 percent to C$327 million, while earnings from its global banking and markets business slipped 3 percent to C$386 million.

Despite moderating growth rates in emerging markets, Scotiabank expects to achieve above average and increasing growth for next year, including in the Caribbean, Waugh said on the call. Scotiabank will meet or exceed its 2013 financial targets, he said.

“It was a decent quarter with little noise that was helped by a decline in loan losses,” Robert Sedran, an analyst with Canadian Imperial Bank of Commerce, said in a note. “That said, the slowing growth in the international segment is notable.”

Bank of Montreal

Bank of Montreal said its adjusted earnings, which exclude some items, were C$1.68 a share, beating the C$1.53 average estimate of 15 analysts surveyed by Bloomberg. The bank posted growth across all its major businesses, including record profit in Canadian personal and commercial banking and wealth management.

“We’re very happy with the quarter,” CEO William Downe, 61, said in a telephone interview. “We characterize it as good earnings, and each of the individual businesses contributed.”

Bank of Montreal’s Canadian consumer-banking profit rose 8.3 percent to C$497 million on higher balances and fees, 10 percent loan growth and lower provisions for credit losses, the company said.

Profit from its Chicago-based BMO Harris Bank rose 10 percent to C$153 million on lower provisions and cost-cutting. The bank has increased earnings from its U.S. unit since doubling deposits and branches with the July 2011 acquisition of Wisconsin-based Marshall & Ilsley Corp. The C$4.1 billion takeover was Bank of Montreal’s largest in its 195-year history.

‘Reasonable Result’

“This is a reasonable result from BMO, with the solid trends in credit quality and personal and commercial Canada offsetting the sluggishness in the U.S. top-line,” Sumit Malhotra, an analyst with Macquarie Capital Markets in Toronto, said in a note.

Profit at the firm’s private-client group, which includes insurance and mutual funds, doubled to C$218 million from a year earlier on an increase in assets under management.

The BMO Capital Markets investment-banking unit profit rose 12 percent to C$280 million, with increases in trading and fees from advising on stock sales.

National Bank of Canada reports results tomorrow, followed by CIBC and Toronto-Dominion Bank on Aug. 29. The country’s six biggest banks are expected to post average per-share profit growth of 3.3 percent excluding some items, according to CIBC’s Sedran.

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