Bank of Montreal profit misses expectations

Bank of Montreal’s profit missed estimates, the company posted net income for the three months ended Oct. 31 of only $1.07 billion ($1.56 a share) down from last year’s net income of $1.074-billion ($1.62 a share).

For fiscal 2014, BMO Financial Group posted net income of $4,333 million or $6.41 per share and net income of $4,453 million or $6.59 per share.

Bill Downe, Chief Executive Officer, BMO Financial Group, commented on the results:

“BMO’s fourth quarter results conclude a year in which the bank delivered $4.5 billion in adjusted net income with adjusted earnings per share up 6% from last year. This performance reflects a well-executed customer-focused strategy and the momentum we have demonstrated over a number of consecutive quarters.”

The poor financial results for BMO is mainly due to lackluster performance in its capital markets division.

John Aiken, analyst at Barclays Capital Markets, in a note to clients, said:

“While BMO continues to show progress in U.S. retail, an abysmal capital markets quarter, noise in wealth management and flat domestic retail earnings on top of an arguably low quality miss will not likely provide much excitement and could weigh on the sector as a whole, unless better earnings are produced throughout the remainder of the week,”

BMO posted earnings per share of $1.63, below what analysts surveyed by Bloomberg had estimated (of $1.68).

The bank said that its capital markets business generated $26 million less than last year, down to $191 million.

The company’s wealth management division also failed to deliver, with earnings dropping from $318 million from the fourth quarter in 2013 to only $253 million in Q4 2014.

BMO’s personal & commercial banking operations in Canada did well though, posting net income of $526 million in the fourth quarter – a 14 percent year-over-year increase.

The banks P&C segment also performed well in the US, posting net income of $163 million, up from $109 million in 2013.

The bank said that it will increase its quarterly dividend to 80 cents per share (up 2 cents). It also announced that it will buy back up to 15 million shares.

John Aiken noted:

“The weaker capital markets reported by BMO provides incremental concern for Royal Bank and National Bank, which have the greatest relative exposures, but this will likely impact the entire group, given the lift each received in the third quarter,” he said.

“Further, with decent, but not spectacular earnings in domestic retail, highlighted by easing lending volume growth, the engine for earnings growth (and positive surprises) for the group appears to be revving a little slower.”

Others appear to be more optimistic about BMO’s results for the fourth quarter.

Peter Routledge, a Toronto-based financial services analyst at investment bank National Bank Financial, said that BMO’s P&C business continues to outperform competitors. He said that the capital markets results were a disappointment, but now awful.

In a note to his clients Routledge said:

“Overall, we regard BMO’s Q4 f2014 results as in-line with our expectations for the bank and indicative of stable franchises in each of its business segments,”

BMO shares fell by 1.8 percent after the bank reported the weaker-than-expected fourth-quarter profit results.