Bank of Montreal profit misses mark as credit losses loom

(Reuters) - Bank of Montreal BMO.TO on Wednesday reported quarterly profit below analysts' estimates as it set aside more money to cover potential loan losses stemming from the coronavirus pandemic.

FILE PHOTO: A Bank of Montreal (BMO) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie/File Photo

Canadian banks are expecting to book higher loan losses this year and the next as the COVID-19 pandemic ravages economies and household incomes. They also expect a hit from a plunge in oil prices, which has hurt the energy sector globally.

BMO set aside C$1.12 billion for future loan losses, vastly higher than C$176 million a year earlier.

The figure includes a $705 million provision for credit losses on performing loans in the current quarter, compared with a $26 million provision a year earlier.

Bank of Nova Scotia BNS.TO kicked off bank earnings for the first quarter on Tuesday and revealed that credit provisions more than doubled to C$1.85 billion from a year earlier, highlighting the damage from the pandemic.

Analysts expect second-quarter profit at Canada’s biggest banks to slide by more than a third from a year earlier also due to margin pressure from decade-low interest rates.

BMO said net income fell to C$689 million ($501.05 million), or C$1 per share, in the second quarter ended April 30 from C$1.49 billion, or C$2.26 per share, a year earlier.

Adjusted net income fell to C$1.04 per share from C$2.30 per share a year earlier. Analysts had expected C$1.22 a share.

BMO’s capital markets unit reported a net loss of $74 million from a profit a year earlier, while its wealth management, Canadian, and U.S. personal and commercial businesses all posted a drop in net income.

The bank’s return on equity was 5.3%, compared with 13.6% in the prior year. It however, maintained its dividend from the previous quarter.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Anil D’Silva