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Bank of Montreal (BMO) Stock Down 4.6% as Q2 Earnings Fall Y/Y

Shares of Bank of Montreal BMO have lost 4.6% following the release of its second-quarter fiscal 2023 (ended Apr 30) results. Adjusted earnings per share of C$2.93 declined 9.2% year over year.

During the reported quarter, BMO completed the acquisition of Bank of the West and its subsidiaries from BNP Paribas. The company recorded higher revenues, a rise in loans and deposit balances during the quarter. However, an increase in expenses and higher provisions were the undermining factors.

After considering non-recurring items, net income was C$1.06 billion ($0.78 billion), plunging 77.7% from the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues (on an adjusted basis), net of insurance claims, commissions and changes in policy benefit liabilities (CCPB) were C$7.86 billion ($5.8 billion), up 19.7% year over year.

Net interest income jumped 27.5% to C$4.82 billion ($3.56 billion). Non-interest income was C$3.63 billion ($2.68 billion), surging 83.6%.

Adjusted non-interest expenses increased 29.6% to C$7.73 billion ($5.71 billion).

The adjusted efficiency ratio (net of CCPB) was 60.2%, up from 55.6% as of Apr 30, 2022. A rise in the efficiency ratio indicates a deterioration in profitability.

Provision for credit losses was C$1.02 billion ($0.75 billion) in the reported quarter compared with C$0.05 billion in the prior-year quarter.

Loans & Deposit Balances Rise

As of Apr 30, 2023, total assets were C$1,250.9 billion ($923 billion), up 9.2% from the prior-quarter end.

Bank of Montreal’s total net loans were up 16.2% to C$634.8 billion ($468.4 billion), while total deposits grew 11.2% to C$875.4 billion ($645.9 billion).

Profitability and Capital Ratios Deteriorate

Bank of Montreal’s return on common equity (as adjusted) was 12.6% in the fiscal second quarter compared with 15.7% on Apr 30, 2022. Adjusted return on tangible common equity was 17.2%, on par with the prior year.

As of Apr 30, 2023, the common equity Tier-I ratio was 12.2%, down from 16% a year ago. Tier-I capital ratio was 13.9% compared with the previous year’s 17.5%.

Our Take

Bank of Montreal’s focus and efforts align with its organic and business restructuring strategies, and are anticipated to support revenues in the upcoming period. The acquisition of Bank of the West will improve the company’s presence in the Western and Midwestern parts of the United States. It expects to complete the conversion of the customer accounts and systems by early September 2023.

However, elevated expenses and a deteriorating macroeconomic backdrop are headwinds. Further, weakness in capital markets business will likely weigh on BMO’s financials.

Bank Of Montreal Price, Consensus and EPS Surprise

Bank Of Montreal Price, Consensus and EPS Surprise
Bank Of Montreal Price, Consensus and EPS Surprise

Bank Of Montreal price-consensus-eps-surprise-chart | Bank Of Montreal Quote


BMO currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

HSBC Holdings HSBC reported a first-quarter 2023 pre-tax profit of $12.89 billion, up significantly from the prior-year quarter. This included a $2.1-billion reversal of an impairment relating to the planned sale of the retail banking operations in France (because the completion of the transaction is less certain) and a provisional gain of $1.5 billion on the acquisition of Silicon Valley Bank UK Limited.

HSBC’s results reflected a rise in revenues on higher interest rates. Also, lower expenses aided the results to some extent. A decline in expected credit losses and other credit impairment charges (ECL) was another tailwind.

UBS Group AG UBS reported first-quarter 2023 net profit attributable to shareholders of $1.03 billion, down 51.8% from the prior-year quarter. UBS’ quarterly performance was worrisome, as there were increases in expenses. Lower revenues acted as another major headwind.

Nevertheless, the performance of the Personal & Corporate Banking division was impressive. UBS’ Asset Management arm, Group Functions, The Investment Bank and Global Wealth Management segments did not perform well.

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