BUSINESS

BMO Financial Group posts 27% increase in Q2 profit, beats analyst estimates

05/23/2012 10:11 EDT | Updated 07/23/2012 05:12 EDT
TORONTO - Bank of Montreal (TSX:BMO) kicked off bank earnings season Wednesday with a 27 per cent rise in second-quarter profits as the bank beat analyst expectations on stronger results in both its U.S. and Canadian retail operations.

BMO said net income rose to nearly $1.03 billion, or $1.51 per share, for the three months ended April 30, an increase of $215 million from the same time last year, before adjustments. Revenue grew 19 per cent to $3.96 billion.

After adjustments, BMO's income was $982 million or $1.44 per share — eight cents higher than a consensus estimate compiled by Thomson Reuters.

Profits at its Canadian retail operations grew by single digits, but income more than doubled in its U.S. retail banking division.

The bank also highlighted a significant drop in its provisions for credit losses, or money set aside to cover bad loans, which fell $102 million to $195 million.

BMO's Canadian personal and commercial banking operations accounted for nearly half of the bank's overall profit, rising 7.8 per cent or $32 million to $446 million.

The U.S. banking operations reported net income more than doubled to US$122 million, up from US$54 million a year earlier, before adjustments. After adjustments related to the acquisition of Marshall & Ilsley, net income was $137 million, up $78 million from a year earlier.

BMO Capital Markets slipped marginally from the same time last year to $225 million in net income, down from $229 million a year earlier.

Chief executive Bill Downe highlighted the bank's continuing plans to lower costs across its operations as part of a long-term review that examines all of its businesses.

"There are no obvious outliers but I think what the analysis is showing us is that in some segments of our business we're going to have to fix or make changes in the cost structure," he said on a conference call.

"Many of the things going on ... are designed to shift more of the available hours to people in the branch to work directly with customers."

He said the bank is also looking at a reorganization of its "mid-offices and back-offices."

Shares of the bank closed 81 cents higher at $56.06 on the Toronto Stock Exchange, after falling as low as $54.35 earlier in the session.

Barclays analyst John Aiken pointed out lower loan losses as well as a better-than-expected effective tax rate helped earnings by about five cents per share.

"Both of these issues represent a beat on lower quality earnings, in our opinion," he said.

"While the lower provisions will likely recur for some time, we do not believe that the market is willing to give BMO full valuation credit for it, similar to last quarter."

BMO's loan loss level is likely around a cyclical low, suggested Rob Sedran, CIBC World Markets in an interview.

"Our assumption is we are somewhere around trough for loan losses," he said.

"We're thinking there's not a lot of upside from the loan losses, we're just not seeing a lot of downside either."

The bank also reported its private client group had $145 million in net income, up $54 million or 59 per cent from a year ago before adjustments.

Net income from corporate services was $91 million, an increase of $65 million from a year ago.

In its earnings report, the bank also provided an outlook for the Canadian economy, calling for modest growth helped by low interest rates but restrained by a strong loonie.

"Households are spending more cautiously in the face of elevated debt levels and higher gasoline prices," the bank said.

"Housing market activity has softened in most regions and mortgage growth is showing tentative signs of slowing."

BMO has more than 46,600 employees across its North American operations, which include retail banking at Bank of Montreal, wealth management and investment banking, as well as its Chicago-based Harris Bank subsidiary.