Bank of Montreal Misses Estimates In Q3 2023 As Credit Loss Provision Woes Continue

Bank of Montreal (TSX: BMO) reported a decline in its fiscal third-quarter revenue, ending with $7.93 billion for the period. This is a decline from last quarter’s $8.44 billion but a bump from last year’s $6.10 billion. The figure also missed the street estimate of $8.09 billion.

The bank said in a statement Tuesday that its provision for credit losses amounted to $492 million, contrasting with a provision of $136 million in the previous year. The ratio of total provisions for credit losses to the average net loans and acceptances stood at 30 basis points, in contrast to the 10 basis points recorded in the previous year.

Total net income came down to $1.45 billion, or $1.97 per share. This compares to $1.06 billion, or $1.30 per share last quarter and to $1.37 billion, or $1.95 per share in the same period last year. This is way down from the street estimate of $3.13 per share.

Reported net earnings showed a 7% uptick compared to the previous year, primarily attributed to the loss related to fair value management actions in the prior year, although this was partially counterbalanced by elevated acquisition-related expenditures and the influence of noted Canadian tax measures.

Net income reported for the Canadian personal and commercial banking segment of the company reached $915 million, marking a decline of $50 million, or 5%, compared to the previous year. Meanwhile, adjusted net income stood at $923 million, registering a $42 million or 4% decrease. These figures were underpinned by a 10% revenue surge driven by escalated net interest income resulting from balanced growth and wider margins. This was accompanied by increased non-interest revenue, yet offset by amplified expenses and a heightened provision for credit losses.

In the US market, reported net income reached $576 million, rising by $8 million or 1% in comparison to the previous year. Adjusted net income posted even more substantial growth, reaching $653 million – a $84 million or 14% increase. The effect of a stronger US dollar contributed to a 4% upswing in reported net income and a 5% rise in adjusted net income.

BMO Wealth Management reported a net income of $303 million, with an adjusted net income mirroring this at $304 million. Both figures indicated a $21 million, or 7%, drop from the preceding year. Meanwhile, BMO Capital Markets’ reported net income surged to $310 million, marking an increase of $48 million or 18%. The adjusted net income for this segment followed suit, reaching $316 million – a $50 million, or 18%, rise.

Corporate services, on the other hand, recorded a reported net loss of $650 million, a decrease from the previous year’s reported net loss of $754 million. When considering adjusted net income, the figures shifted even further, with a reported loss of $159 million compared to an adjusted net income of $7 million in the previous year.

“We continue to deliver solid financial results reflecting the strength, diversity and active management of our businesses in an evolving environment. Record revenue in Canadian Personal and Commercial Banking and contribution from Bank of the West drove good pre-provision, pre-tax growth this quarter, and our capital and liquidity position remains strong,” said CEO Darryl White.

The inclusion of Bank of the West results in the current quarter had a dual impact, decreasing reported net income by $272 million and increasing adjusted net income by $167 million. Notably, the present quarter’s results incorporated severance costs of $162 million ($223 million pre-tax), linked to the acceleration of operational efficiencies across the company, alongside legal provisions of $83 million (both pre-tax and after-tax) recorded in BMO Capital Markets. The cumulative impact of these expenses reduced earnings per share by $0.34 per share.

Overall, on adjusted basis, net income came down to $2.04 billion for the quarter, or $2.78 per share, down from last quarter’s $2.22 billion and last year’s $2.13 billion.

BMO last traded at $114.07 on the TSX.

Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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