Bank of Montreal Reports Lower-than-Expected Q4 2023 Earnings

Bank of Montreal (TSX: BMO), Canada’s third-largest lender, fell short of analysts’ expectations in its fiscal fourth quarter as the bank grappled with higher expenses tied to the integration of Bank of the West and a decline in wealth-management income. The Toronto-based lender reported adjusted earnings of $2.81 per share, missing the $2.85 average estimate from analysts in a Bloomberg survey.

Non-interest expenses for the quarter totaled $5.7 billion, surpassing the forecast of $4.95 billion and significantly higher than the $4.78 billion reported a year earlier. The acquisition and integration of Bank of the West, completed in February, incurred after-tax costs of $433 million for the fourth quarter, up from $145 million in the same period last year.

Bank of Montreal’s corporate-services division reported a net loss of $757 million, attributed to higher expenses related to the Bank of the West impact and a charge associated with the consolidation of Bank of Montreal real estate. The wealth-management unit also faced headwinds, with adjusted net income declining 12% to $263 million due to increased expenses, despite growth in client assets and the inclusion of Bank of the West.

Provisions for credit losses, however, came in slightly lower than analysts’ forecasts, totaling $446 million for the quarter, which nearly doubled from C$226 million a year earlier. The common equity tier 1 ratio, a key measure of a bank’s core capital, decreased to 12.5% from 16.7%.

The bank’s peers, Bank of Nova Scotia and Toronto-Dominion Bank, also reported earnings misses earlier in the week, with increased provisions for credit losses impacting their financial results.

For the fiscal fourth quarter, Bank of Montreal posted a net income of $1.62 billion, or $2.06 per share, down from $4.48 billion, or $6.51 per share, in the comparable quarter a year ago. The bank faced various charges during the period, including acquisition and integration costs for Bank of the West, amortization of acquisition-related intangible assets, and expenses associated with a lawsuit with a predecessor bank, M&I Marshall and Ilsley Bank.

Revenue also saw a decline, dropping to $8.36 billion from $10.57 billion, though it exceeded analysts’ anticipated drop of $8.26 billion. Among its segments, Canadian personal and commercial net income declined 5% to $962 million, while U.S. personal and commercial net income rose slightly to $661 million, driven by the stronger U.S. dollar.

BMO Capital Markets, however, reported a significant increase in net income, rising 37% to $489 million.

Bank of Montreal acknowledged the challenges posed by a spike in interest rates and high inflation, making it difficult for banks to grow their mortgage and lending businesses. The bank also attributed the increase in provisions for credit losses to cautiousness amid gloomy economic conditions.

BMO’s Chief Financial Officer, Tayfun Tuzun, commented on the increased cost savings target of over $800 million, a 20% rise from the initial estimate of $670 million. Tuzun attributed the increase to a reassessment of technology and operations resource needs.

The bank’s net interest income, the difference between what it earns on loans and pays out on deposits, rose by 31% to $4.94 billion in the quarter from a year earlier, reflecting the impact of aggressive rate hikes by the Bank of Canada.

Despite the earnings miss, Bank of Montreal remains optimistic about navigating the economic challenges ahead, with the bank being the latest in a series of Canadian lenders reporting results below estimates.

Information for this briefing was found via Market Watch,, Bloomberg, 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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