BMO Earnings Top Estimates on US Business, Capital Markets

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(Bloomberg) — Bank of Montreal topped estimates on stronger-than-expected performance both at its US operations as it pushes to improve results at the business and at its capital-markets unit, which benefited from strong trading.

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The Toronto-based lender earned C$3.48 a share on an adjusted basis in its fiscal first quarter, according to a statement Wednesday, more than analysts’ C$3.22 average estimate.

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Adjusted net income at the company’s US banking business totaled C$802 million ($585 million) in the three months through January, better than the C$790 million average forecast of four analysts in a Bloomberg survey and up from the C$707 million it earned a year earlier. At the company’s capital-markets unit, adjusted net income totaled C$660 million, topping the C$523 million average forecast. 

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The bank saw “record revenue in each of our operating segments, strong fee growth in our market driven businesses and margin expansion in our Canadian and US banking businesses,” Chief Executive Officer Darryl White said on a call with analysts.

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Overall net income totaled C$2.49 billion in the quarter, up 16% from a year earlier. The bank’s shares gained 3.2% to C$201.35 at 9:47 a.m. in Toronto. They’ve climbed 38% in the past year.

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Bank of Montreal has been focused on rebuilding its return on equity and has pledged to improve profitability at its US division in particular. It’s been trimming costs companywide to aid in those efforts and recorded C$202 million pretax for severance costs in the first quarter.

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Adjusted ROE came in at 12.4% in the first quarter for the bank as a whole, while in the US that figure hit 8.5%.

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Over the past four quarters the firm has been divesting some of its less lucrative loan portfolios in the US, and executives said Wednesday it’s about 90% done with that process. Having now decreased US loan balances by about 5%, management predicted the bank would soon see lending accelerate.  

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On credit, Bank of Montreal recorded C$746 million in provisions for possible loan losses, less than the C$807 million analysts had forecast.

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While the credit picture overall was positive, management noted that the macroeconomic picture in Canada is more uncertain than in the US. Bank of Montreal is seeing some stress among Canadian consumers, particularly at the “lower end of the market,” said Mat Mehrotra, group head of Canadian personal and business banking.

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The company’s results were “well ahead of expectations” even with the headwind of severance costs, wrote Jefferies Financial Group Inc. analyst John Aiken in a note to clients. 

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Lower-than-forecast provisions for credit losses and a strong boost in trading also helped, he said, “but we believe that investors should focus on the underlying performance strength that included margin expansion on both sides of the border and efficiency gains.” 

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(Updates with comments from earnings call, shares starting in fourth paragraph.)

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