* Q2 EPS C$1.34 vs C$1.26 a year earlier
* Q2 adjusted EPS C$1.35 vs C$1.28 a year earlier
* BMO sees increased cost savings from acquisition of M&I
(Adds analyst, CEO comments, updates share price move)
By Euan Rocha
TORONTO, May 25 Bank of Montreal (BMO.TO)
reported a quarterly profit on Wednesday that topped investor
expectations, driven largely by growth in its Canadian lending
portfolio and a drop in provisions for soured loans.
The Toronto-based bank also said it expects cost savings
from its proposed acquisition of Wisconsin-based Marshall &
Ilsley MI.N to exceed earlier expectations.
Some analysts were disappointed, however, that BMO did not
retract a plan to issue up to C$400 million ($408.2 million) in
equity, even though its capital ratios remain in good standing.
The equity issue is aimed at ensuring that the bank remains
in-line with regulatory requirements following the close of the
"We argued last quarter that the bank would not need to
resort to this measure to maintain good standing with respect
to the new Basel III capital ratios," said National Bank
analyst Peter Routledge. "This quarter's results support that
BMO's chief executive, while speaking on a conference call,
indicated that he was encouraged by the bank's capital levels,
but reiterated that BMO would make a final call on the equity
issue only around the time the deal closes later this quarter.
Analysts contend that the proposed issue remains an
overhang on shares of BMO, which closed just under 1 percent
higher on Wednesday at C$62.05.
BMO, which owns a network of retail banking operations
spread across Canada and in the U.S. Midwest, said net income
in the quarter ended April 30 rose to C$800 million, or C$1.34
a share, from C$745 million, or C$1.26 a year earlier.
The bank said adjusted earnings rose to C$1.35 a share from
C$1.28 a year earlier. Analysts on average had forecast
earnings of C$1.31 a share, according to Thomson Reuters
"We would characterize this as a solid quarter for BMO,"
wrote Barclays Capital analyst John Aiken in a note to clients.
"BMO's second quarter was a good start to earnings season, and
should help support the sector's valuations."
Canada's highly conservative banking sector weathered the
global financial debacle with relative ease. While U.S. banks
have struggled with revenue growth and their stocks have
tumbled this year, shares of Canada's top banks have risen and
outpaced the broader Canadian stock market.
For share performance graphic: r.reuters.com/zej69r
For StarMine Data on Banks: link.reuters.com/fyd69r
For graphic on CPI/benchmark rate: r.reuters.com/xep69r
Analysts caution that Canadian banks could now be entering
a more difficult phase in the business cycle as interest rates
begin to climb and retail lending begins to slow.
BMO's results already began to show some evidence of this
trend as growth in its personal lending business within Canada
slowed on a sequential basis.
BMO said it expects the Marshall & Ilsley acquisition to
give a slight boost its fiscal 2011 earnings after excluding
restructuring and integration costs.
The deal, which was announced in December last year, will
more than double the size of BMO's retail banking presence in
the United States. BMO, which initially expected the deal to
result in about US$250 million in cost savings, said it now
expects savings to exceed US$300 million.
The transaction, which was approved by Marshall & Ilsley
shareholders on May 17, is still subject to certain regulatory
BMO, which traces its history back to the early 1800s, is
the first of Canada's big six banks to report. National Bank of
Canada (NA.TO), Toronto-Dominion Bank (TD.TO) and Canadian
Imperial Bank of Commerce (CM.TO) report quarterly earnings on
Royal Bank of Canada (RY.TO), the largest of Canada's big
six, reports on Friday, while Bank of Nova Scotia (BNS.TO) the
last to report, comes next Tuesday. [ID:nN2043497]
(Reporting by Euan Rocha; editing by Peter Galloway)