* Q4 EPS C$1.11, above estimates, vs year-earlier C$1.06
* Announces deal to buy Diners Club from Citigroup
* Loan loss provisions C$386 mln vs year-earlier C$465 mln
* Shares down in late trade as banking sector ebbs
(Adds CEO comment from conference call, analyst comment. In
U.S. dollars unless noted)
By Andrea Hopkins
TORONTO, Nov 24 Bank of Montreal (BMO.TO)
reported a higher-than-expected quarterly profit on Tuesday and
said it was buying the Diners Club North America credit card
business to double its corporate card portfolio.
The deal, combined with a 16 percent rise in quarterly
earnings, emphasizes the relative strength of Canada's big
lenders as they emerge from the financial crisis with excess
capital and solid balance sheets.
BMO, Canada's fourth-largest bank, kicked off the earnings
season for the big banks with net income of C$647 million ($610
million), or C$1.11 a share, for its fourth quarter ended Oct.
31, up from C$560 million, or C$1.06, a year earlier.
That was well above analysts' average estimate of 98
Canadian cents a share, according to Thomson Reuters I/B/E/S,
but BMO's shares -- like those of rival banks -- were little
changed in trade on the Toronto Stock Exchange.
BMO set aside less money for bad loans, trimmed expenses
and boosted profit despite a drop in trading revenues from
recent record levels. Analysts said BMO's performance bodes
well for the rest of Canada's big banks, which report over the
next two to three weeks.
"The main thing going into this quarter was going to be
credit performance and if we look at the headline number in
provisions for credit losses, it was pretty good," said Edward
Jones analyst Craig Fehr.
"One quarter a trend does not make, so I'll be looking at
the credit performance of all the Canadian banks, because I
don't think it necessarily declares the end of the credit
headwinds by any stretch, but it is a positive."
Chief Executive Bill Downe said the bank will hold onto its
huge capital reserves until there is some certainty about
global regulatory requirements, but noted BMO's 12.2 percent
Tier I capital ratio gives it a lot of flexibility to boost
earnings when the time is right, likely through acquisition.
"The good news ahead is that we have flexibility around any
new regulatory reform that may emerge, and equally important,
we are well positioned to deploy capital for growth initiatives
and take advantage of opportunities that arise," Downe told
analysts on a conference call.
Minutes before announcing the surprisingly strong results,
Toronto-based BMO said it was buying Diners Club North America
credit cards from Citigroup Inc (C.N) [ID:nN24290954].
The deal gives BMO exclusive rights to issue Diners Club
cards in the United States and Canada. It will also more than
double BMO's corporate card business, as many business
travelers use Diners Club cards.
The terms of the deal were not disclosed.
While BMO said the deal would add nearly $1 billion of
receivables and $7.8 billion of card transactions, Barclays
Capital analyst John Aiken said the acquisition was more about
BMO's attempts to make further inroads in the U.S. market than
about a grab for earnings power.
"While this may not be overly material to earnings --
representing less than 2 percent of BMO's business lending
portfolio -- we do view it as an opportune expansion that
leverages its Canadian/U.S. platforms," Aiken said in a
Diners Club is well-known to U.S. consumers, while BMO is
far from a household name, despite its big presence in the U.S.
Midwest through its Chicago-based Harris Bank unit.
Earnings for the fourth quarter showed strength across most
of BMO's business lines and geographies.
Macquarie analyst Sumit Malhotra said BMO's "beat" in the
quarter was driven by expense management, noting total expenses
of C$1.9 billion were down 5 percent from the third quarter.
"We view this as another 'grind-it-out' quarter of
respectable profitability for BMO," Malhotra wrote in a
The amount the bank set aside to cover bad loans fell to
C$386 million from C$465 million, a sign that credit woes may
be easing as the recession recedes, at least in Canada.
The dividend was unchanged at 70 Canadian cents per common
share, as expected.
Net income in Canadian retail banking rose 22 percent to
C$394 million in the quarter from a year earlier, as revenue
increased across personal, commercial and cards businesses.
Income on the capital markets side was stagnant. It edged
down to C$289 million from C$290 million, ending a string of
big quarterly increases.
Shares in BMO were down 0.4 percent at C$53.34 in late
afternoon trade on the Toronto Stock Exchange, while the broad
financial index was down 0.1 percent.
(Additional reporting by Euan Rocha in Toronto and Dan
Wilchins in New York; Editing by Peter Galloway)
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