Bank of Montreal misses estimates on capital markets challenges

·2 min read
FILE PHOTO: A Bank of Montreal logo is seen outside of a branch in Ottawa

By Nichola Saminather and Mehnaz Yasmin

(Reuters) -Bank of Montreal missed analysts' estimates for third-quarter profit on Tuesday, with earnings falling from a year earlier as revenue from its capital markets business slumped and it increased provisions for credit losses (PCL).

Net income excluding one-off items fell to C$2.13 billion ($1.64 billion), or C$3.09 a share, in the three months ended July 31, from C$2.29 billion, or C$3.44 a share, a year earlier. Analysts had estimated C$3.14.

BMO shares fell 1.3% to C$126.04, compared with a 0.3% decline in the Toronto stock benchmark.

The third quarter was a mixed bag for Canadian banks, with some seeing stronger-than-expected loan and margin growth while others posted bigger-than-forecast declines in capital markets revenue.

BMO had strong loan growth and margin expansion during the quarter that drove record revenue in its Canadian and U.S. retail banking business.

"We do expect the recent interest rate changes to impact borrowers when they refinance or renew, which ultimately could lead to increased delinquency," but the risk is modest, Patrick Cronin, BMO's chief risk officer, said on its analyst call.

Total-bank net interest margin, excluding trading, rose 6 basis points from the prior quarter, as the bank benefited from higher central bank rates.

But its capital markets business earnings fell sharply, with profit nearly halving from a year earlier, driven by lower issuances, fees and trading activity, as well as markdowns on loan underwriting commitments, BMO said.

Wealth management profit also declined as assets under management decreased.

BMO took PCL of C$136 million, compared with a recovery of C$70 million a year ago and analysts' expectations of C$202 million.

Excluding the impact of provisions and taxes, adjusted profit fell 2% from a year ago.

($1 = 1.2983 Canadian dollars)

(Reporting by Nichola Saminather in Toronto and Mehnaz Yasmin in Bengaluru; Editing by Shailesh Kuber, Kirsten Donovan and Jonathan Oatis)