Bank of Montreal’s U.S. Growth Slows as Estimates Missed

(Bloomberg) -- Bank of Montreal’s Canadian retail bank has finally taken back the spotlight from its U.S. counterpart as the company missed earnings estimates.

  • The lender’s U.S. personal-and-commercial banking division, which includes Chicago-based BMO Harris Bank, has increased profit at a faster pace than its Canadian retail bank since the beginning of fiscal 2018. That ended in the fiscal third quarter, with earnings growth in the U.S. division rising 1.1% from a year earlier, matching the expansion at the company’s Canadian retail bank.

Key Insights

  • Chief Executive Officer Darryl White said in a June interview that he expected the U.S. to grow faster than the rest of the bank, albeit at a slower pace than recent quarters. Earnings from its U.S. operations were up 17% from a year earlier. The U.S. retail-banking division posted profit of C$368 million ($278 million), with year-over-year growth the slowest since the last quarter of the 2017 fiscal year.
  • Despite the U.S. focus, Canadian banking remains Bank of Montreal’s largest division. The domestic retail bank posted earnings of C$648 million in the quarter.
  • Executives have been pushing to boost productivity at Bank of Montreal, the least-efficient among Canada’s biggest banks. The bank’s adjusted efficiency ratio -- a measure of what it costs to produce a dollar of revenue -- was 59.9% in the third quarter, compared with White’s target of 58% or better by the end of fiscal 2021.
  • Bank of Montreal’s provisions for soured loans surged from the second quarter and a year earlier to its highest level in at least two years. The Toronto-based lender set aside C$306 million for provisions, up from C$186 million a year ago and C$176 million in the second quarter.

Market Reaction

  • Bank of Montreal shares have risen 3.6% this year through Monday, compared with a 3.7% gain for Canada’s eight-company S&P/TSX Commercial Banks Index.

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  • Third-quarter net income rose 1.3% to C$1.56 billion, or C$2.34 a share, from C$1.54 billion, or C$2.31 a share, a year earlier. Adjusted per-share earnings totaled C$2.38 a share, missing the C$2.49 average estimate of 14 analysts in a Bloomberg survey.
  • Read more about Bank of Montreal’s quarterly results here.

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