WRAPUP 1-BMO, Laurentian Bank profits surge in Q2

Wed May 26, 2010 2:08pm EDT

* BMO profit doubles, beats expectations

* BMO shares climb 3.2 pct

* Laurentian Bank profit up 34 pct, meets expectations

* Laurentian shares rise 1.7 pct

By Andrea Hopkins

TORONTO, May 26 (Reuters) - Canadian banks kicked off their second-quarter earnings season on Wednesday with Bank of Montreal and Laurentian Bank reporting strong profit growth, sending banking industry shares higher.

Bank of Montreal (BMO.TO), Canada's fourth-largest lender, said its profit doubled in the three months ended April 30 as loan losses fell and capital markets surged. Its results handily beat analysts' forecasts.

They also raised expectations of better credit quality at all of Canada's big banks, most of which report quarterly results this week.

It was the fifth straight quarter of higher revenues and net income for Toronto-based BMO, which has retail and wholesale banking operations across Canada and the U.S. Midwest. Its shares were up 3.1 percent in midafternoon trade on the Toronto Stock Exchange.

Laurentian Bank of Canada (LB.TO), a regional bank based in the French-speaking province of Quebec, reported a 34 percent jump in profit, in line with expectations, as higher revenues offset a rise in loan losses.

Shares in Laurentian rose 1.3 percent to C$43.62, while the Toronto exchange's index of financial stocks was up 1.6 percent in a stronger overall market.

Barclays Capital analyst John Aiken said BMO's results set a very positive tone for earnings in the quarter, with all of the big banks expected to benefit from lower loan losses after suffering from consumer and business defaults during the recession.

Still, Aiken noted that BMO has outperformed its Big Six rivals over the past two quarters so its results may not be indicative of an overall trend.

"While it does look like the banks can exceed consensus based on BMO's results, if the previous quarters are an indication, the remaining banks may not generate the same strength in their positive surprises," Aiken said in a research note.

BMO said it had net income of C$745 million ($702 million), or C$1.26 a share, for the quarter ended April 30. That's up from C$358 million, or C$0.61 a share, a year earlier.

Cash earnings per share were C$1.28, up from 63 Canadian cents in the second quarter of 2009. That was well above the C$1.10 per share profit expected by analysts, according to Thomson Reuters I/B/E/S.

BMO's Canadian operations once again powered earnings, with profit up 16 percent from a year earlier to C$396 million.

The capital markets segment was also strong, with profit rising 38 percent to C$259 million. Canadian banks bulked up on their wholesale banking operations, which include lucrative trading arms, during the global financial crisis when rivals were reeling.

BMO's U.S. operations, which are concentrated in the Midwest through the bank's Chicago-based Harris Bank subsidiary, were a weak spot. Net income fell 31 percent to US$45 million from the second quarter of 2009.

BMO has been stung by higher loan losses in the United States relative to its Canadian operations as U.S. consumer and business borrowers struggle with the slower U.S. recovery.

The bank has said it is retooling its U.S. operations to focus on commercial lending. Under the restructuring, corporate customers will be moved to the bank's commercial lending arm.

BMO said provisions for credit losses, or the amount of money the bank set aside to cover bad loans, fell to C$249 million, down C$123 million from a year earlier.

Credit losses ate into bank profits in 2009 as consumers and businesses struggled to repay debts during the recession, but conditions improved in the first quarter and analysts had expected further improvement in the last three months.

Tier 1 capital was 13.3 percent, at the high end of Canadian peers and well above that of most global rivals.

The quarterly dividend was unchanged at 70 Canadian cents a share, as expected.

In April Harris Bank completed the FDIC-assisted acquisition of AMCORE Bank N.A. in Illinois and Wisconsin. While the deal was not expected to be material to BMO's earnings, the bank has said it is eager to increase its geographic footprint across the U.S. Midwest.

Laurentian Bank earnings were slightly less robust than BMO's as its loan losses grew.

The Montreal-based bank said net income rose to C$28.3 million, or C$1.06 a share, in the second quarter, ended April 30. That compares with C$21.2 million, or 76 Canadian cents a share, in the same quarter a year earlier.

Analysts, on average, had expected a profit of C$1.06 a share, according to Thomson Reuters I/B/E/S.

Laurentian Bank said it had C$16 million in loan losses in the quarter, unchanged from the first quarter of 2010 and up from C$12 million in the second quarter of 2009.

Canada's other big banks are due to report this week and next. Canadian Imperial Bank of Commerce (CM.TO), Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO) and National Bank of Canada (NA.TO) report on Thursday. Bank of Nova Scotia (BNS.TO) caps the earnings season on June 1.

($1=$1.06 Canadian) (Reporting by Andrea Hopkins; editing by Peter Galloway)