* Adjusted profit tops estimates
* Markets-related revenue rises, loan-loss provisions fall
* Shares up 0.9 pct
* Company to buy back up to 2.3 pct of shares
TORONTO, Dec 4 (Reuters) - Bank of Montreal's quarterly profit rose 41 percent, topping estimates on the back of a doubling of wholesale banking income and a gain on U.S. loans that had previously been written down.
The company, Canada's fourth-largest bank and also a major presence in the U.S. Midwest, earned C$1.1 billion ($1.11 billion), or C$1.59 a share in the fourth quarter ended Oct 31. That compared with a year-before profit of C$768 million, or C$1.11 a share.
On an adjusted basis, the bank earned C$1.65 a share, well ahead of analysts' expectations of a profit of C$1.43 a share, according to Thomson Reuters I/B/E/S.
Canada's banks have been named the world's soundest for five years running by the World Economic Forum, due in part to their cautious business approach, and caution benefited BMO's bottom line during the quarter.
Adjusted provisions for credit losses were C$113 million, down from C$281 million a year earlier, helped by the unexpected repayment of impaired loans acquired when BMO acquired Wisconsin lender Marshall and Illsley (M&I) last year.
BMO paid $4.1 billion for M&I, which it combined with its Chicago-based Harris Bank.
"Credit losses were much less than what I was expecting," said Tom Lewandowski, an analyst at St. Louis-based Edward Jones. "Coming up with what you think the fair value of a loan is at the time of purchase is difficult."
Stripping out the impact of the impaired loans, profit for the U.S. bank fell 16 percent to C$130 million, due to a reduction in certain loan portfolios and regulatory changes.
Also driving BMO profit higher was a doubling of wholesale banking income, due largely to a jump in equity and interest rate trading revenues from what was a relatively weak quarter a year ago.
Stronger capital markets income was also key to Royal Bank of Canada's (RBC) better-than-expected 22 percent rise in quarterly income reported last week.
RBC and BMO are the first two of Canada's "big five" banks to report year-end results. Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will report on Thursday, while Bank of Nova Scotia will release results on Friday.
Toronto-based BMO also said on Tuesday it had launched a normal course issuer bid to buy back up to 15 million, or about 2.3 percent, of its shares.
Despite the large beat and buyback, BMO's shares were up only 0.9 percent at C$59.82, slightly outperforming its Toronto-listed peers.
John Aiken, an analyst at Barclays Capital, said in a note that investors were unlikely to push up BMO's shares significantly, as the gain on the U.S. impaired loans overshadowed a flatter core result.
Analysts also noted the flat year-over-year performance of BMO's Canadian retail banking division, which was hurt by narrowing interest margins as expiring loans were renewed at current rock-bottom rates.
"We believe that better revenue growth in retail banking divisions is needed for BMO's stock to perform well on a sustained basis relative to peers," RBC Capital Markets analyst Andre-Philippe Hardy said in a note.
Income from BMO's flagship Canadian retail bank was unchanged at C$439 million, as the narrower interest margins were offset by higher loan volumes and fees.
Canadian banks are bracing for an expected slowdown on domestic consumer lending growth, as a cooling housing market combined with concerns about record Canadian debtloads prompts more caution among borrowers.