Bank of Montreal, the first Canadian bank to post fiscal second-quarter results, reported its biggest profit decline in seven years after it set aside twice as much money to cover bad loans. It cut about 1,100 management jobs, or 3% of its work force.
Net income for the quarter that ended April 30 fell 44%, to $316 million, or 61 cents a share, from a year earlier, the Toronto company said Tuesday. Revenue rose 1%.
Canadian banks will probably report their sixth straight quarter of declining profits on rising loan losses, said Sumit Malhotra, an analyst with Macquarie Capital Markets. Bank of Montreal, Canada's fourth-biggest bank, set aside $332 million for bad loans, largely in the United States, up from $134 million a year earlier.
Bank of Montreal's profit beat estimates, helping lift most bank stocks. Excluding one-time items such as severance costs, profit was 93 cents a share, the company said. That topped the median estimate of 88 cents a share from 13 analysts surveyed by Bloomberg.
"BMO's results were solid and better than most market participants anticipated, us included," Dundee Securities Corp. analyst John Aiken said in a note. "Provisions for credit losses were the biggest surprise in the quarter, coming in well below expectations."
Bank of Montreal's earnings were pared by $71.4 million, or 15 cents a share, as a result of a writedown tied to Apex Trust, a fund with investments in credit-default swaps. The company also reported $105.3 million in severance costs from "simplifying" its management structure, according to Bill Downe, its chief executive.
Canadian consumer banking profit rose 9.4%, to $312.4 million, from a year earlier on deposit growth. Profit from the company's Harris consumer bank in Chicago fell 17%, to $22.3 million, after U.S. loan losses surged more than eightfold, to $127.7 million.
The BMO Capital Markets investment banking unit earned $222 million, up 33% from a year earlier, on higher revenue from corporate banking and arranging stock sales. Earnings were pared by a $192 million pretax writedown for its investment in Apex Trust, partly offset by a $87.5 million adjustment. BMO Capital Markets arranged 13 stock sales, valued at $1.1 billion, in the quarter, compared with six deals valued at $663 million a year earlier.
Profit from the private-client group, which includes brokerage, investing services and mutual funds, fell 42%, to $55.3 million. Bank of Montreal's mutual fund sales fell 82%, to about $44.6 million, in the three months, from about $267 million a year earlier, according to statistics from the Investment Funds Institute of Canada.