(Bloomberg) -- Bank of Montreal’s momentum in U.S. banking is just getting stronger, even as the company missed estimates after recording severance expenses in its capital-markets division.

  • Earnings growth from the company’s U.S. personal-and-commercial division, which includes Chicago-based BMO Harris Bank, has been outstripping growth in its Canadian consumer-banking division. The U.S. division had 17% profit growth in its fiscal second quarter, topping the pace from Canadian banking for the sixth straight quarter.

Key Insights

  • Bank of Montreal’s consistent U.S. performance has been the “primary catalyst” for the bank’s premium valuation among its Canadian peers, Scotiabank analyst Sumit Malhotra said in a May 21 note to clients. The U.S. personal-and-commercial division, which includes Chicago-based BMO Harris Bank, continued to outperform in the second quarter, with earnings rising to C$406 million ($301 million), better performance than in Canadian banking and at BMO Capital Markets.
  • Chief Executive Officer Darryl White has been pushing to boost productivity at what’s been the least efficient among Canada’s biggest banks. Bank of Montreal’s adjusted efficiency ratio -- a measure of what it costs to produce a dollar of revenue -- was 63.6% in the second quarter, unchanged from the previous three months.
  • Earnings rose in three of Bank of Montreal’s four main operating divisions: Canadian banking -- its biggest business -- as well as U.S. personal and commercial banking and wealth management. Earnings fell 13% at BMO Capital Markets after the company recorded severance costs and higher loan-loss provisions. BMO Capital Markets had C$90 million in after-tax severance expenses in the quarter.

Market Reaction

  • Bank of Montreal has been the best-performing Canadian bank stock since White took over as CEO in November 2017, and this year. The stock has jumped 16% this year, outperforming the 9.5% gain of Canada’s eight-company S&P/TSX Commercial Banks Index.

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  • Second-quarter net income rose 20% to almost C$1.5 billion, or C$2.26 a share, from C$1.25 billion, or C$1.86 a share, a year earlier. Adjusted per-share earnings totaled C$2.30 a share, missing the C$2.33 average estimate of 14 analysts in a Bloomberg survey.
  • Most Canadian banks increase their quarterly dividends twice a year. Bank of Montreal stuck to that tradition, raising its payout to C$1.03 from C$1.
  • Read more about Bank of Montreal’s quarterly results here.

(Updates with severance costs in third bullet point. An earlier version of this story corrected a year-earlier net income figure.)

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve Dickson

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