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May 27, 2020

BMO misses Q2 estimates amid 'prudent' surge in loan provisions

RBC, BMO profits crushed by credit loss provisions

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Bank of Montreal missed profit expectations by a wide margin in its fiscal second quarter as provisions for loan losses more than tripled.

BMO's net income fell to $689 million in the three-month period ending April 30, compared to $1.5 billion a year earlier. On an adjusted basis, the bank earned $1.04 per share. Analysts, on average, were expecting $1.27 in per-share profit.

Similar to Bank of Nova Scotia and National Bank of Canada on Tuesday, BMO's bottom line was dragged down by a big jump in cash being set aside for loans that could go bad. In the second-quarter, BMO's provisions for credit losses (PCLs) hit $1.12 billion, compared to $349 million in the prior quarter.

BMO confirmed, however, that it is maintaining its quarterly dividend at $1.06 per share.

"We demonstrated the resilience of our earnings power as we earned through the impact of market volatility and prudent loan loss provisioning," CEO Darryl White said in a release. "As we transition to the re-opening of our economies, we will sustain and adapt operations to support our customers, employees, communities and the broader economic recovery, and together emerge from this crisis even stronger."

Earnings in the company's core operations fell sharply on both sides of the border, with adjusted Canadian personal and commercial banking down 41 per cent year-over-year to $362 million, and U.S. adjusted profit slipping a more modest 16 per cent.

Capital markets was a notable weak spot in the quarter, as that unit swung to a loss with BMO citing higher provisions and lower revenue in its Global Markets and Investment and Corporate Banking operations.