BMO reported profit of $2.6-billion in its second fiscal quarter on Wednesday.Isabella Falsetti/The Globe and Mail
Bank of Montreal BMO-T second-quarter profit surged, topping analysts’ estimates on a boost from its capital markets business and its division in the United States.
BMO earned $3.53 per share, or $2.6-billion in the three months that ended April 30, up 34 per cent from the same quarter last year. Adjusted to exclude certain items, the bank said it earned $3.67 per share. That beat the $3.41 per share analysts expected, according to Bloomberg data.
In March, BMO unveiled its new strategy to revive its U.S. business and boost its return on equity – a closely watched measure of profitability. In 2024, BMO set a goal of improving its ROE to 15 per cent by the end of 2027.
The U.S. division – which makes up 40 per cent of BMO’s earnings – is the division weighing on the bank’s profitability. BMO set a target to improve the unit’s ROE from 8 per cent to 12 per cent by 2028.
“This quarter’s results reinforced that trajectory,” BMO chief executive officer Darryl White said during a conference call with analysts.
In the second quarter, BMO’s return on equity edged higher to 13 per cent and 8.6 per cent in its U.S. business.
Last year, BMO rejigged the structure of its U.S. unit by combining its key businesses. In May, the bank sold its transportation and vendor finance businesses.
Profit from the bank’s U.S. unit rose 32 per cent to $790-million, bolstered by higher revenue and a lower provisions.
“The U.S. segment, which remains a focal point for investors, was a positive in the quarter with earnings ahead of our forecasts, largely due to lower expenses, and importantly, sequential growth in commercial loans,” Scotiabank analyst Mike Rizvanovic said in a note to clients.
BMO is the second major Canadian bank to report earnings for the fiscal second quarter. Earlier, Bank of Nova Scotia BNS-T posted earnings that beat analyst expectations. National Bank of Canada NA-T also reported earnings on Wednesday. Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T will post earnings on Thursday.
In the quarter, BMO set aside $739-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was lower than analysts expected and included $734-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.
Data released this month showed that Canadians are increasingly filing for insolvency as costs rise and concerns around housing affordability and unemployment weigh on consumers. In Ontario and British Columbia, more homeowners are missing their mortgage payments amid higher interest rates.
BMO chief risk officer Piyush Agrawal said that while these weaknesses are impacting clients with unsecured loans, the credit quality of its mortgage book is higher and more resilient.
Profit from Canadian personal and commercial banking was $884-million, rising 15 per cent from a year earlier on higher revenue and lower provisions, partially offset by higher expenses.
Capital markets profit surged 47 per cent to $638-million, driven by higher revenue in global markets and investment and corporate banking, as well as lower provisions.
The bank raised its quarterly dividend by 4 cents to $1.71 per share.