Bank of Montreal sees more cost savings as it absorbs Bank of the West, shares rise

By Nivedita Balu and Jaiveer Shekhawat

(Reuters) -Bank of Montreal on Friday forecast more cost savings from its $16 billion acquisition of U.S. lender Bank of the West, voicing confidence in its purchase despite an uncertain global banking environment.

The bank, however, missed analysts' estimates for quarterly profit, pressured by rising costs and due to nearly doubling of bad debt provisions as it prepares for a softer economy next year.

Smaller rival National Bank of Canada reported a better-than-expected earnings on Friday, helped by strength at its capital markets unit.

BMO's shares reversed course to rise 1.5%, while those of National Bank were up 4.2%.

BMO now expects cost savings over $800 million, roughly 20% higher than its initial estimate of $670 million, expected to be recorded by February 2024, driven by a reassessment of technology and operations needs.

"We're confident in the power of our integrated North American franchise," CEO Darryl White told analysts.

KBW analyst Mike Rizvanovic the increase in the cost savings was "certainly positive."

"Their commentary around Bank of the West was positive and that's something that people had been concerned about," he said.

The results wrap up the earnings season, which confirmed investors' fears of an industry buffeted by slower credit growth and risks of higher delinquencies as the economy stalls after record pace of interest rate hikes.

The slower growth environment has pushed banks to put more money aside, a sum that has increased over the quarters this year, pressuring profits amid growing expenses. Overall, the top six Canadian banks set aside nearly C$4 billion for bad debt provisions, compared with C$2.3 billion from a year ago.

BMO's provisions for credit losses (PCLs) rose to C$446 million ($329.74 million) for the fourth quarter ended Oct. 31, from C$226 million a year earlier.

Net income fell by C$2.87 billion to C$1.62 billion, of which Bank of the West hit earnings by C$317 million, BMO said.

Expenses rose about 19%.

On an adjusted basis, it earned C$2.81 per share, compared with analysts' estimates of C$2.85, according to LSEG data.

"Expenses were elevated relative to our expectations and there was a much smaller-than-expected build in performing PCLs," RBC Capital Markets analyst Darko Mihelic said.

The bank, Canada's third largest lender, is the latest to report earnings below estimates, joining peers Scotiabank and TD Bank.

National Bank of Canada reported a jump in fourth-quarter profit and beat expectations by 18 Canadian cents.

($1 = 1.3526 Canadian dollars)

(Reporting by Jaiveer Singh Shekhawat and Arasu Kannagi Basil in Bengaluru and Nivedita Balu in Toronto; Editing by Pooja Desai, Emelia Sithole-Matarise and Nick Zieminski)