Noah Zivitz

Managing Editor, BNN Bloomberg

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Bank of Montreal closed out earnings season for the Big Six with a profit miss as the lender set aside more funds for loans that could sour and saw earnings in its capital markets division tumble.
 
BMO said its net income in the three-month period that ended July 31 fell 40 per cent to $1.37 billion from $2.28 billion a year earlier. The sharp decline was due in part to costs associated with BMO's planned US$16.3-billion takeover of Bank of the West, including a $694-million hit caused by the change in interest rates since the deal was announced in December, the bank said in its release Tuesday.
 
On an adjusted basis, BMO said it earned $3.09 per share in its latest quarter. Analysts were expecting $3.15 in per-share profit.
 
BMO wasn't immune to a trend that has played out in this reporting season, as difficult market conditions cast a pall on the banks’ capital markets operations. In BMO's case, profit from that division sank 53 per cent year-over-year to $262 million.
 
The bank booked $136 million in credit loss provisions during the quarter, nearly triple what it set aside in the previous quarter.

“Aside from a challenging quarter in capital markets, which drove the bank's modest [earnings] miss versus consensus, at first look a solid third-quarter result with all other operating segments performing well. While the headline [earnings] miss could drive some share price underperformance today, we continue to favor BMO's medium-term outlook relative to peers,” stated Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, in a note to clients Tuesday.
 
BMO's core Canadian banking division was a stabilizing force in the latest quarter as net income in that unit jumped 17 per cent year-over-year to $965 million, helped in part by a 16 cent year-over-year surge in its commercial loan book.
 
Meanwhile, the U.S. personal and commercial unit's net income was flat at US$445 million as a 12 per cent jump in revenue was partly offset by higher expenses and US$36 million in credit loss provisions.
 
"We delivered robust loan growth and margin expansion that drove record revenue in our North American personal and commercial businesses, buffering the impact of challenging market conditions on our capital markets businesses," said BMO chief executive officer Darryl White in the release.
 
BMO reiterated Tuesday that it is expecting to close the Bank of the West takeover by the end of this year.