* Strong results despite lower profit at U.S. bank unit
* BMO's domestic retail banking steady despite housing
* Shares up slightly; more banks to report this week
By Cameron French
TORONTO, Feb 25 Bank of Montreal
reported higher-than-expected quarterly earnings on Tuesday on
strong wealth management and domestic banking profits, and
executives said they expect the uneven performance of BMO's U.S.
unit to eventually improve.
Profit from BMO's Canadian retail banking operation rose 8
percent to C$484 million ($436.90 million) in the first quarter
ended Jan. 31, with loan growth of 10 percent more than
offsetting narrower interest margins.
"Growth in the domestic bank was better than my
expectations," said Edward Jones analyst Tom Lewandowski.
Canada's No. 4 bank has fought to increase its share of the
domestic mortgage market over the past few years, offering
low-rate loans that have sometimes spurred price wars with the
All told, quarterly net profit was C$1.06 billion or C$1.58
a share, up from C$1.04 billion, or C$1.51 a share, a year
Excluding a charge for the amortization of
acquisition-related intangible assets, the bank earned C$1.61 a
share, topping analyst' estimates of a profit of C$1.53,
according to Thomson Reuters I/B/E/S.
Holding back profit gains was BMO's U.S. Harris Bank unit,
which saw income slide 15 percent to US$153 million, although
that result was up from a very weak fourth quarter.
BMO roughly doubled the size of its U.S. bank when it bought
Wisconsin lender Marshall & Ilsley in 2011, but the business has
so far shown uneven results.
On a conference call with analysts, BMO chief operating
officer Frank Techar said the U.S. business has so far been a
"tale of two cities", strong on the commercial and business
banking side, but weak in consumer banking, which has been hit
by regional economic concerns and regulatory changes.
"Quarter to quarter we're going to see some variability
continuing in the market," he said, adding that the bank was
focused on improving returns from its consumer lending and card
"I think we're confident that the second half of the year is
going to look better than the first half of the year," he said.
BMO's profit gains follow a similarly better-than-expected
result from smaller rival National Bank of Canada late
That bank reported earnings of C$1.09 a share before special
items, topping analysts' estimates of C$1.05. Personal lending
volume rose 7 percent, and commercial lending increased by 5
Domestic retail lending, particularly mortgages, has long
been the main profit driver for Canada's banks, but loan growth
has slowed in the last few years as Canada's previously red-hot
housing market has cooled and consumers struggle under record
high debt levels.
However, fears of a U.S.-style housing crash have eased over
the past year, and loan growth has maintained some momentum, in
part because of persistently low mortgage rates.
But analysts say rates will eventually rise, which could
raise loan losses.
"We believe that tepid loan growth and a turn in the credit
cycle will, at some point, pressure earnings in this segment,"
National Bank Financial analyst Peter Routledge said in a note.
The concerns over retail banking profits have prompted the
banks to seek growth in other segments, particularly wealth
BMO, which is buying Britain's F&C Asset management for
about C$1.3 billion, said wealth management income rose 8
percent to C$175 million in the first quarter.
The bank's shares were up 6 Canadian cents at C$72.63 on the
Toronto Stock Exchange.
Royal Bank of Canada, the country's largest bank,
will release its results on Wednesday, while Toronto-Dominion
Bank and Canadian Imperial Bank of Commerce will
report on Thursday.