UPDATE 4-Bank of Montreal profit rises, tops estimates
* Q1 cash EPS C$1.13 vs Street view C$1.03
* Provisions for credit losses down 22 pct to C$333 mln
* BMO extends pattern set last week by rivals
* Shares rise 3.6 percent to 52-week high (Adds CEO comment from conference call, analyst)
TORONTO, March 2 (Reuters) - Bank of Montreal (BMO.TO) said on Tuesday quarterly profit surged, topping expectations, as domestic banking income climbed 28 percent and provisions for loan losses fell, more than offsetting weak U.S. results.
The strong performance for Canada's fourth-largest bank sent shares up 3.6 percent and extended a trend set last week by Canadian Imperial Bank of Commerce (CM.TO) and National Bank of Canada (NA.TO).
Indeed, the entire Canadian banking sector rose on Tuesday as three stronger-than-expected results in a row raised expectations that Canada's big lenders would all show that a trough in profits and peak of bad credit had already passed.
"BMO's positive earnings surprise makes the tally three for three so far this quarter," Barclays Capital analyst John Aiken said in a note to clients. "Intraday, the bank is being rewarded for its results, we think rightfully so."
Bank of Montreal's net income rose to C$657 million ($632 million) for the fiscal first quarter ended Jan. 31 from C$225 million a year earlier, when the Toronto-based bank took capital markets environment charges of C$359 million.
Cash earnings per share, which include amortization of intangibles like acquisitions, were C$1.13 in the latest quarter, well above market expectations for C$1.03, according to Thomson Reuters I/B/E/S.
BMO said funds set aside to cover bad loans, known as provisions for credit losses, fell to C$333 million, down 22 percent from a year earlier and down 14 percent from the fourth quarter.
CAUTION ON CREDIT OUTLOOK
Credit losses have eaten into bank profits in recent quarters as consumers and businesses have struggled to repay debts during the recession. Analysts have been waiting for signs that the losses have peaked, and BMO's numbers suggest the worst may be over.
Aiken nevertheless said he was cautious about the bank's credit outlook, noting consumer impairment levels were still a worry. Trading revenues also look unsustainable, he said.
"Despite our view that BMO's outlook continues to improve, we do question its ability to sustain the current level of trading revenues and remain conservatively cautious on our outlook for credit," Aiken said.
Capital markets revenue, which has powered Canadian bank profits in recent quarters, was up 40 percent from a year earlier at C$248 million but down from previous quarters, suggesting the volatile profits from that sector are ebbing to more normal levels.
Canadian domestic banking, the traditional profit engine of all of the nation's big banks, was strong for BMO. Net income surged 28 percent to C$403 million as loan and deposit books grew and the bank set aside less money to cover bad loans.
But BMO's U.S. banking operations struggles as impaired loans increased and the U.S. economy lagged the Canadian recovery. Net income there fell 43 percent to $16 million.
BMO has a big presence in the U.S. Midwest through its Chicago-based Harris Bank subsidiary.
Chief Executive Bill Downe has said BMO will take advantage of weaker rivals by acquiring small U.S. banks and branches that fit its strategy and geographic footprint, but on Tuesday he dampened speculation that the bank would strike a lot of deals in the near term.
The strong results sent shares of BMO 3.6 percent higher to a fresh 52-week high of C$58.75 in late afternoon trade on the Toronto Stock Exchange. The stock hit a 52-week high on Monday of C$56.88 as early signs of a strong quarter bolstered the sector. Shares were just C$26.14 a year ago.
Canada's biggest banks are scheduled to report quarterly results later this week and next week, with Royal Bank of Canada (RY.TO) due on Wednesday, Toronto-Dominion Bank (TD.TO) due Thursday, and Bank of Nova Scotia (BNS.TO) scheduled for March 9. ($1=$1.04 Canadian) (Reporting by Andrea Hopkins; editing by Frank McGurty)