Bank of Montreal’s first-quarter profit rose 18 percent due to stronger loan growth and investment banking fees, and the bank said it will issue less stock than previously expected to pay for its acquisition of Wisconsin bank Marshall & Ilsley Corp.
Cash earnings of C$1.32 were marginally above expectations of C$1.31 a share, while the planned equity issuance of C$400 million was half the bank’s original target to pay for the $4.1 billion acquisition announced late last year.
Profit was driven by increased lending at wider margins, and stronger trading and underwriting fees at its investment bank unit.
But the lender’s shares rose only slightly, as the strong result ran up against expectations that had risen following much better than expected profits at rivals Canadian Imperial Bank of Commerce and National Bank of Canada (NA.TO).
“The stage was set with a pretty high bar last week,” said Craig Fehr, an analyst at Edward Jones in St. Louis, Missouri.
About one hour into trading, BMO was up 0.3 percent at C$62.14, moving roughly in line with its peers.
Nevertheless, Fehr said loan growth, wholesale banking and wealth management profit were as all strong during the quarter.
CONSUMERS STILL BORROWING
Analysts have predicted that retail loan growth would slow this year as borrowers try to reduce debt levels in anticipation of higher interest rates. But first-quarter bank results so far suggest consumers are still willing to borrow.
“I’d say the one blemish was the fact that credit performance didn’t improve at the pace we’d expected it to, so loan loss provisions were slightly above our estimates,” said Fehr.
Provisions for bad loans — which have been steadily declining over the past year, helping drive profit growth for Canadian banks — fell 25.6 percent to C$248 million.
On a net basis, BMO earned C$776 million ($800 million), or C$1.30 a share, in its first quarter, up 18 percent from C$657 million, or C$1.12 a share, a year earlier.
Profit at BMO’s Midwest U.S. bank slid 17 percent due to impaired loans.
BMO has operated Chicago-based Harris Bank for years, and in December it agreed to buy troubled Wisconsin lender Marshall & Ilsley.
At the time, BMO said it would issue about C$800 million in stock to pay for the transaction. But extra clarity on looming Basel III capital regulations allowed it to reduce that estimate to C$400 million, it said on Tuesday .
The bank said its pro-forma Basel II common equity ratio is 6.4 percent, lagging the standard of 7 percent that the banks must eventually meet.
