BMO profit surges on busy capital markets, low loan-loss provisions - The Globe and Mail

A pedestrian walks in Toronto's Financial District, on Feb. 11, 2021.

Fred Lum/The Globe and Mail

Bank of Montreal’s second-quarter profit surged higher, driven by busy capital markets and abnormally low provisions for loan losses as the outlook for an economic recovery improves.

BMO’s adjusted profit reached nearly $2.1-billion in the quarter, excluding costs from two recent deals. That compared with $715-million a year ago, when the bank’s returns reached a nadir in the early months of the coronavirus pandemic. Adjusted profit increased 2.8 per cent when compared with the first three months of the 2021 fiscal year.

One of the largest factors spurring the stronger results was a plunge in provisions for credit losses – the money banks set aside to cover loans that may default. BMO set aside just $60-million in the quarter – $155-million to cover loans that are past due, offset by a recovery of $95-million that had previously been set aside against those that were still current, based on improving economic forecasts. In the second fiscal quarter last year, BMO set aside $1.12-billion to build its reserves against the crisis created by COVID-19.

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In the three months that ended April 30, BMO earned $1.3-billion, or $1.91 per share, compared with $689-million, or $1.00 per share, in the same quarter last year. Profits were reduced by $772-million in charges related to the sale of the bank’s European asset management arm and its private banking business in Hong Kong and Singapore.

Adjusted to exclude those charges and other items, BMO said it earned $3.13 per share. On average, analysts expected adjusted earnings per share of $2.82, according to Refinitiv.

Second-quarter revenue was nearly $6.1-billion, up 11 per cent year over year, but down from nearly $7-billion in the first quarter.

In Canadian personal and commercial banking, which is BMO’s largest division, quarterly profit of $764-million more than doubled from $361-million a year ago. Revenue increased by 9 per cent as the bank earned higher fees and interest, and had lower provisions for credit losses. Loan balances increased 3 per cent from a year ago, driven mostly by mortgage lending in hot housing markets. But commercial loan balances – a key strength for BMO – were flat year over year.

Profit from U.S. personal and commercial banking was $542-million, up 60 per cent year over year but lower than in the first quarter. Loan balances declined 1 per cent year over year, but improved from the first quarter, as the economic reopening in the U.S. proceeds more quickly than in Canada.

Capital markets profits reached $563-million, a sharp reversal from a $74-million loss in the same quarter last year, when the bank had trading losses in its structured product business. The unit benefited from robust activity in equities trading, equity and debt issuance and underwriting in its investment bank, as well as a $55-million recovery of provisions for credit losses.

Wealth management profit of $346-million was also up sharply from $144-million a year ago, driven by rising client assets in strong markets.

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The bank kept its quarterly dividend constant at $1.06 per share, in keeping with temporary restrictions imposed by Canada’s banking regulator. With dividend increases and share buybacks prohibited, the bank’s capital levels swelled again, as its common equity Tier 1 (CET1) ratio reached 13 per cent, compared with 12.4 per cent in the first quarter.

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BMO profit surges on busy capital markets, low loan-loss provisions - The Globe and Mail
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