BMO misses third quarter expectations as financial markets earnings fall 53%

Bank of Montreal ended the Big Six earnings season with a shortfall as the lender set aside more funds for loans that could deteriorate and saw profits at its financial markets division plummet.

BMO said its net profit in the three months ended July 31 fell 40% to $1.37 billion from $2.28 billion a year earlier. The sharp drop was partly due to costs associated with BMO’s planned takeover of Bank of the West for US$16.3 billion, including a drop of $694 million caused by the change in interest rates since announcing the deal in December, the bank said in its release on Tuesday.

On an adjusted basis, BMO said it earned $3.09 per share in its most recent quarter. Analysts were expecting $3.15 in earnings per share.

BMO has not been immune to a trend that has played out this season as difficult market conditions have clouded banks’ capital markets operations. In BMO’s case, that division’s profits fell 53% year-over-year to $262 million.

The bank recorded $136 million in provisions for credit losses in the quarter, nearly triple what it set aside in the prior quarter.

“Apart from a difficult quarter in capital markets, which caused the bank to [earnings] missed the consensus, at first glance a strong third quarter result with good results for all other operating segments. While the title [earnings] Miss could cause the stock price to underperform today, we continue to favor BMO’s medium-term outlook relative to its peers,” Keefe, Bruyette & Woods analyst Mike Rizvanovic said Tuesday in a note to customers.

BMO’s core Canadian banking division was a stabilizing force last quarter, as the unit’s net profit jumped 17% year-over-year to $965 million, helped in part by an increase 16 cents year-over-year from its commercial loan portfolio. .

Meanwhile, net income for the U.S. personal and business unit was flat at US$445 million, as a 12% increase in revenue was partially offset by higher expenses and US$36 million. provisions for credit losses.

“We delivered robust loan growth and spread expansion that generated record revenues in our North American personal and commercial businesses, mitigating the impact of challenging market conditions on our capital markets business,” said BMO Chief Executive Darryl White said in the statement.

BMO reiterated on Tuesday that it expects to complete the takeover of Bank of the West by the end of this year.