BMO reports better than expected results

Bank of Montreal - 4Q 2015 net income of CAD 1.214bn ($907m), up 13% YoY, beating estimates and taking the total for FY2015 to CAD 4.405 ($3.3bn). Several analysts noted that whilst the results looked impressive, some of the reason why the bank beat estimates stem from the sale of its retirement services and a legal settlement.

File photo of a BMO location in Toronto.Deborah Baic/The Globe and Mail Share

Bank of Montreal reported that its profit in the fourth quarter rose to $1.2-billion, up 13 per cent over last year, making it the second consecutive Canadian bank to surpass the cautious expectations among observers.

After making some adjustments, BMO's quarterly profit was $1.90 a share, up 17 per cent, easily beating analysts' estimate of $1.70. The lender increased its quarterly dividend by 2 cents a share to 84 cents.

Heading into the final quarter of the year, observers had been expecting the big banks to report only modest gains in profit amid a slow domestic economy and struggling energy sector. The stock market has reflected this slow-growth environment: The S&P/TSX consumer banks index has fallen 4.8 per cent in 2015.

The dour outlook appears to be misplaced so far. On Tuesday, Bank of Nova Scotia said that its profit rose 8 per cent over last year, after making some adjustments, with strong results from Canadian and international operations.

In the case of BMO, the gains were similarly widespread. Profit from the lender's Canadian personal and commercial banking unit rose to $560-million, up 7 per cent from last year. U.S. personal and commercial banking saw profit rise to $207-million, up 23 per cent, driven largely by the stronger U.S. dollar. Profit from wealth management rose 8 per cent. And profit from capital markets rose 27 per cent – again, with the stronger greenback providing a tailwind.

"These results reflect the benefits of our diversified business mix, with Canadian and U.S. banking and wealth management all contributing to the bank's growth," Bill Downe, BMO's chief executive officer, said in a statement.

For the full fiscal year, BMO's profit rose to $4.4-billion, up 2 per cent.

Despite continuing concerns about the impact of Canada's depressed energy sector, BMO said that its provision for credit losses fell to $128-million, down $32-million from the previous quarter.

BMO announced that its Chicago-based subsidiary BMO Harris Bank had completed the acquisition of General Electric Capital Corp.'s transportation finance business, giving BMO North America's largest truck and trailer financing unit.

BMO also said that it intends to buy up to 15 million of its own shares, representing 2.3 per cent of outstanding shares. Throughout 2015, the bank has purchased eight million of its own shares.

The shares rose 1.6 per cent in early trading on Tuesday.

However, analysts noted that a number of factors driving BMO's profit growth during the quarter were not related to the bank's typical operations, suggesting that the better-than-expected results may not fully reflect the quarterly performance. For example, the sale of a retirement services business and a legal settlement helped boost profits, but cannot be counted on in the year ahead.

"Any initial positive reaction in its stock will likely be muted by end of day as these issues come to light on the call with management," John Aiken, an analyst at Barclays, said in a note.