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Bank of Montreal missed analysts’ estimates as it grappled with weak capital-markets revenue and reported an increase in loan-loss provisions.
The Toronto-based bank earned $2.56 per share on an adjusted basis in the fiscal first quarter, it said in a statement Tuesday, falling short of the $3.02 average estimate of analysts in a Bloomberg survey.
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Some analysts had predicted that BMO’s trading revenue could come in light for the quarter. The bank’s capital-markets division reported net income of $393 million, down 19 per cent from a year earlier, with lower trading revenue countered by higher underwriting and advisory fee revenue.
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“In our opinion, there is no way to put a positive spin” on the results, Meny Grauman, an analyst with the Bank of Nova Scotia, said in a note to investors. “The big story for this quarter is the substantial drop in revenues.”
Total revenue fell almost eight per cent from the fourth quarter of last year, to $7.67 billion.
The bank’s shares dropped 3.9 per cent to $121.93 at 10:06 a.m. in Toronto after earlier slumping as much as 5.8 per cent, their biggest intraday decline since December 2022. The stock is down eight per cent this year, compared with a 2.7 per cent decline for S&P/TSX Commercial Banks Index.
Adjusted results were affected by a number of one-time items, including a special assessment by the U.S. Federal Deposit Insurance Corp. of $417 million before taxes related to the failures of Silicon Valley Bank and Signature Bank.
Provisions for credit losses in the three months through January totalled $627 million, more than the $514.2 million analysts had forecast.
Gross impaired loans on commercial real estate continued to march higher, to $481 million in the quarter.
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BMO acquired San Francisco-based Bank of the West last February, and investors have been closely watching for signals that it will deliver on plans to wring cost savings as well as revenue synergies out of the deal. Last quarter, it increased its outlook for pretax cost savings from the takeover to US$800 million annually from a previous estimate of US$670 million.
“With the integration of Bank of the West complete, we have achieved 100 per cent of the US$800 million run-rate cost synergies to start the second quarter, and we’re delivering incremental operational efficiencies across the enterprise, resulting in a sequential decline in our expense base,” chief executive Darryl White said in the statement.
The bank also announced a restructuring program last August and incurred a total of about $340 million in severance charges over the past two quarters. Savings from those efforts aren’t expected to be fully realized until later this year.
Elsewhere, the lender has been trying to bolster its regulatory capital ratio by lowering the risk-weighted assets on its balance sheet. Among Canadian banks, it’s been the biggest user of synthetic risk transfers — which entail partly passing on risks tied to certain loans to private investors — and also sold a recreational-vehicle loan portfolio to KKR & Co. for US$7.2 billion in December. That deal saw BMO provide seller financing by buying bonds backed by the RV loans, and it remains the servicer of the debt.
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The bank said Tuesday it recorded a pretax net accounting loss of $164 million on the sale of the RV portfolio.
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BMO’s Common Equity Tier 1 capital ratio increased three basis points from the previous three months to 12.8 per cent, and the bank said it was ending a discount on its dividend-reinvestment plan given its “strong position and consistent internal capital generation.” Several banks have used DRIP discounts as a means of raising capital.
—With assistance from Derek Decloet.
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2024-02-27 15:22:30Z
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