* BMO profit tops estimates
* Markets-related revenue rises, loan-loss provisions fall
* Shares up 0.6 pct
* Company to buy back up to 2.3 pct of shares
* CWB shares fall 3.5 pct as profit misses estimates
By Cameron French
TORONTO, Dec 4 Bank of Montreal topped
estimates with its fourth- quarter profit on Tuesday, but the
stock failed to gain traction as investors took a cautious view
of its lending performance, while smaller rival Canadian Western
Bank missed estimates and fell 3.5 percent.
Profit at BMO, Canada's fourth-largest bank, was boosted by
a doubling of wholesale banking income and a gain on U.S. loans
that had previously been written down. BMO acquired Wisconsin
lender Marshall and Illsley (M&I) last year, more than doubling
the branch count of its U.S. midwest bank.
But the performance was marred by narrower interest margins
on BMO's retail lending businesses, which drew attention in a
lending climate that analysts expect to slow due to a softening
Canadian housing market.
BMO, the second of Canada's "big five" banks to report
year-end results, 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-earlier profit of C$768 million, or C$1.11 a share.
Adjusted profit was C$1.65 a share, well ahead of analysts'
expectations of a C$1.43 per share profit.
"It was a sizeable beat, but when you scratch below the
surface you're looking for sources of earnings that you can feel
confident can be replicated into the future and we didn't see
too much of that," said Brad Smith, an analyst at Stonecap
The bank's shares ended the session up 0.6 percent at
C$59.63, only slightly outperforming its Toronto-listed Canadian
rivals, even as the bank said it planned to buy back up to 2.3
percent of its shares.
Canadian banks are bracing for an expected slowdown on
domestic consumer lending growth as a cooling housing market,
combined with concerns about record Canadian debt loads, prompt
more caution among borrowers.
Loan volume at BMO's flagship Canadian retail bank grew by
about 8 percent year-over-year, but interest margins narrowed to
2.67 percent from 2.88 percent, as loans were renewed at current
rock-bottom interest rates.
Income from the unit was flat at C$439 million.
While there are few signs that interest rates are set to
rise, Frank Techar, BMO's head of personal and commercial
banking, said the bank expects to slow the margin erosion by
lowering its cost of capital.
"We are turning our attention to deposit growth. The single
biggest opportunity we have to mitigate suppression of margins
on this time is to increase our retail deposits growth," he said
on a conference call.
Margin pressure also weighed on Canadian Western, Canada's
seventh-largest bank by market capitalization, which posted a 20
percent profit gain. But the results disappointed investors who
had been looking for a better result.
The bank earned C$43.0 million, or 55 Canadian cents a
share, up from a year-earlier C$35.9 million, or 47 Canadian
cents a share.
The result, the 98th consecutive quarterly profit for the
Edmonton, Alberta-based bank, was driven by a 14 percent rise in
loans and an C$8.5 million increase in net gains on securities.
But it was held back by interest margins that narrowed to 2.67
percent from 2.79 percent.
"Net interest income was lower than we anticipated as
greater-than-expected loan growth was offset by
greater-than-anticipated margin pressure," RBC Capital Markets
analyst Andre-Philippe Hardy said in a note.
Adjusted cash earnings of 56 Canadian cents a share fell
just short of analysts' expectations of a profit of 58 Canadian
cents a share.
Canadian Western raised its dividend by 6 percent to 17
Canadian cents a share, which analysts had expected. Its shares
fell C$1.00 to C$28.00.
BMO U.S. CREDIT BOOST
BMO's 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 bought
BMO paid $4.1 billion for M&I, which it combined with its
Chicago-based Harris Bank.
Excluding 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 was a doubling of wholesale banking
income, due largely to a jump in equity and interest rate
trading revenues from 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.
Toronto-Dominion Bank and Canadian Imperial Bank of
Commerce will report on Thursday, while Bank of Nova
Scotia will release results on Friday.