BMO misses expectations amid Bank of the West integration

·3 min read
bmo-0524-ph
bmo-0524-ph

The Bank of Montreal missed expectations in its second quarter as the bank set aside more funding for potentially bad loans and recognized costs associated with its acquisition of U.S.-based Bank of the West.

BMO’s net income fell to $1.06 billion in the three months ending April 30, down from $4.76 billion a year earlier. On an adjusted basis, the bank’s profit grew to about $2.22 billion, or $2.93 per share, from $2.19 billion the year before. Bloomberg analysts had been expecting $3.21 per share.

The bank also maintained capital buffer of 12.2 per cent and raised its quarterly dividend by four cents to $1.47 per share.

“Against the backdrop of a shifting environment, BMO delivered solid performance including the benefit of a full quarter of results from Bank of the West,” said BMO chief executive Darryl White during a May 24 conference call following the results. “While credit trends are beginning to normalize from historically low levels as expected, credit performance remains strong across our portfolios.”

White added that the bank’s capital equity tier 1 ratio, which compares a bank’s capital against its risk-weighted assets, stood above the 12 per cent regulatory requirement following the closing of the Bank of the West deal. That was a decrease from the 18.2 per cent buffer at the end of the first quarter in 2023, the bank said.

The bank’s provision for credit losses widened to $1.02 billion in the second quarter from $50 million a year earlier, due in large part to the initial recognition of $705 million in provisions on Bank of the West’s performing loan portfolio. On an adjusted basis, PCLs were up to $318 million from $50 million in the year ago period.

Adjusted profit in BMO’s Canadian personal and commercial banking segment fell eight per cent to $864 million due to higher expenses and provisions for credit losses. BMO’s U.S. banking segment profit grew by 47 per cent to $866 million on a stronger U.S. dollar and through $163 million in adjusted contributions from Bank of the West.

Wealth management earnings, meanwhile, were down 10 per cent year over year to $285 million as global markets weakened, leading to lower online brokerage volumes. Profit at BMO Capital Markets fell 14 per cent from last year to $388 million on an adjusted basis even as it eked out a gain in revenue.

Like the Bank of Nova Scotia, BMO sought to calm investor fears about commercial real estate, saying the office segment represents one per cent of the bank’s overall loan portfolio.

Barclays PLC analyst John Aiken said BMO’s miss was exacerbated by provisions for credit losses, but noted that Bank of the West did help bolster BMO’s results in its first quarter of contribution.

“The acquisition of Bank of the West contributed to earnings and BMO managed to bolster its regulatory capital ratio,” Aiken said in a May 24 note. “While there were no apparent issues with deposits, domestic loan growth is slowing and higher expenses were an issue in the quarter.”

Bank of the West contributed $230 million to BMO’s profit and $1.1 billion in revenue this quarter, according to chief financial officer Tayfun Tuzun during the conference call.

Shares of BMO fell over three per cent to $113.29 in late morning trading in Toronto following the results.

• Email: shughes@postmedia.com | Twitter: