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BMO hikes divided as first-quarter profit shrinks

Jennifer Kwan
Fin - Balance Sheet - CA

While first-quarter profit at Bank of Montreal shrank, earnings topped forecasts by industry analysts on an adjusted basis and Canada's fourth-largest bank hiked its payout to shareholders.

The first of Canada's big banks to report quarterly results, BMO raised its quarterly dividend to 74 Canadian cents on Tuesday, which is an increase of 2 cents. That helped to send BMO shares up 88 cents to $62.16 early afternoon on Toronto's S&P/TSX composite index.

Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver, said the market reaction reflects "quite favorable" results, along with the dividend hike.

"Any time there's news of a dividend hike it indicates confidence in the future. While there may be a section of the market that perhaps were expecting a higher dividend the very fact that BMO raised its dividend by almost 3 per cent it's taken as a positive sign," said Picardo.

BMO said net income was $1.05 billion, or $1.53 a share, in the period ended January 31. That compares with a year-before profit of C$1.11 billion, or C$1.63 a share. Revenue fell slightly to $4.08 billion.

On an adjusted basis, BMO said it earned $1.52 a share, which topped average analysts expectations of $1.48 a share, according to Thomson Reuters.

Bank earnings to take a hit on lending?

BMO is the first of the country's big banks to report earnings. Many market observers expect quarterly results to reflect, in some fashion, a slowdown in consumer lending linked largely to Canada's housing market as interest rates remain ultra low, which squeezes bank margins.

"If you look at the Canadian consumer, and you look at their debt to disposable income ratios, I think that a lot of that debt run up has been driven by housing. The underlying trend that led to that was housing price increases, and that was pretty substantial," said Tom Lewandowski, a financial services analyst with Edward Jones in St. Louis.

Eventually, a slowdown in personal loan growth will show. "It's going to happen at some point in the future. Maybe it's not during the first half of 2013. Maybe it's the second half of 2013, maybe it's 2014," he said.

The rest of Canada's biggest banks are expected to release results this week and next including Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, National, as well as Bank of Nova Scotia.