Bank of Montreal's (BMO.TO) second-quarter profit fell a steeper-than-expected 5 percent, the bank said on Wednesday, due to narrowing interest margins on its Canadian loans and one-time charges.
After the results, the latest in a generally disappointing quarter for the Canadian banking sector, shares dropped by 2.5 percent at C$62.09. It was the weakest Canadian financial stock in early trading.
Canada's banks have been named the soundest in the world five years running by the World Economic Forum, but have begun to feel the effects of a slowing domestic housing market and rock-bottom interest rates that squeeze profits on their existing loan book.
"There's been a lot of talk ... about a slowing Canadian consumer, and we're seeing that evident in the results reported to date. That is an area of concern for the bank," said Jeff Bradacs, portfolio manager at Manulife Asset Management, which owns BMO shares.
Margins on the its Canadian loans narrowed to 2.59 percent from 2.83 percent, squeezing BMO's Canadian banking profit by C$3 million to C$430 million.
Narrower margins also pressured income at its U.S. Harris Bank unit, which BMO bulked up in 2011 with the acquisition of Wisconsin lender Marshall & Ilsley. Profit in the division rose a slim 6 percent to C$152 million.
All told, Canada's fourth largest bank earned C$975 million, or C$1.42 a share, in the quarter ended April 30, down from C$1.03 billion, or C$1.51 a share, a year earlier.
RESTRUCTURING, INTEGRATION COSTS
The shortfall was due in part to a C$59 million aftertax restructuring charge as well as C$31 million in integration costs from the Marshall & Ilsley takeover.
The costs "will likely be viewed as disappointing as the M&I synergies are largely complete," Barclays Capital analyst John Aiken said in a note.
Excluding items, BMO earned C$1.46 a share, falling short of analysts' expectations C$1.49 a share, according to Thomson Reuters I/B/E/S.
The result follows disappointing results from Toronto-Dominion Bank (TD.TO) on Thursday and Bank of Nova Scotia (BNS.TO) on Tuesday.
Smaller National Bank of Canada (NA.TO), which reported on Friday, has been the only bank to beat estimates, a shift for a sector that consistently tops expectations.
Slower loan growth has prompted banks to focus on cost-cutting and returning capital to shareholders to pump up earnings per share in a difficult revenue environment. Both TD and National announced buybacks during the quarter.
BMO, which announced in December it would buy back up to 15 million shares over the next year, said it repurchased 4 million shares during the quarter.
Profit at BMO Capital Markets, its wholesale banking unit, rose 18 percent to C$275 million from a weak quarter last year, while profit at the wealth management segment slid 4 percent to C$141 million.
Royal Bank of Canada (RY.TO) and Canadian Imperial Bank of Commerce (CM.TO) are the final big Canadian banks are to report results on Thursday.
(With additional reporting by Euan Rocha; Editing by Jeffrey Hodgson and Jeffrey Benkoe)