Bank of Montreal’s capital-markets division helped the company’s earnings beat estimates last quarter, continuing a string of Canadian banks that are posting strong trading results amid volatile markets.
(Bloomberg) — Bank of Montreal’s capital-markets division helped the company’s earnings beat estimates last quarter, continuing a string of Canadian banks that are posting strong trading results amid volatile markets.
Revenue from BMO Capital Markets came in at C$1.72 billion ($1.27 billion) for the three months through January, the Toronto-based bank said Tuesday. While that was down from a year earlier, it topped analysts’ average estimate of C$1.48 billion. Overall earnings also exceeded expectations for the fiscal first quarter.
Markets have remained volatile in recent months as hopes that central banks’ tightening campaigns are near an end duel with concerns that the higher rates may lead to a recession. At Bank of Montreal, the turbulence led to an increase in first-quarter trading revenue from fixed income, foreign exchange and equities compared with the prior three months.
Bank of Montreal posted “an in-line quarter at first look due partly to outsized trading revenue, with continued strength in P&C lending in Canada and the US,” Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, said in a research note, referring to the company’s personal and commercial banking business.
Rival Canadian Imperial Bank of Commerce, which reported results last week, benefited from similar trends in the quarter, while trading was a bright spot in Bank of Nova Scotia’s results, announced Tuesday, which otherwise missed estimates.
Bank of Montreal shares fell after its non-interest expenses rose from a year earlier and its net interest margin remained below year-earlier levels. The shares slipped 1.4% to C$128.94 at 9:46 a.m. in Toronto.
“On the negative side was NIM compression and high expenses, albeit higher-than-expected expenses might be ‘OK’ as long as the overall narrative of expense control and operating leverage is not materially changing and operating leverage resumes later this year,” Darko Mihelic, an analyst at Royal Bank of Canada, said in a note.
Scotiabank’s results were marred by the lender’s failure to capture the benefit of rising interest rates. Its net interest margin — the difference between what the bank earns from loans and what it pays depositors — contracted to 2.11% in the three months through January, down from 2.18% in previous quarter.
International ‘Disappointment’
Scotiabank’s international division — centered on Chile, Colombia, Mexico and Peru — has weighed on the lender’s shares in recent years. Chief Executive Officer Scott Thomson, who took over on Feb. 1, has said that the returns on the capital Scotiabank deployed into international markets in the past decade “have not been commensurate with the risk.” The unit’s net interest margin contracted to 4% from 4.08% in the fiscal fourth quarter.
“We do not believe that expectations were high for Scotia in the first quarter, but the miss will likely be viewed as a disappointment as margins declined in international,” Barclays Plc analyst John Aiken said in a note.
Shares of Scotiabank fell 4.9% to C$68.03. Scotiabank has advanced 2.4% this year, while Bank of Montreal has risen 5.1%, compared with a 6.5% advance for the S&P/TSX Commercial Banks index.
Bank of Montreal completed its $16.3 billion purchase of Bank of the West from BNP Paribas SA on Feb. 1, expanding its US footprint to 32 states and adding 1.8 million new customers.
Bank of Montreal’s net income dropped 92% to C$247 million, or 30 cents a share, because of accounting adjustments related to the Bank of the West acquisition. Excluding some items, profit was C$3.22 a share. Analysts estimated C$3.16, on average.
The bank set aside C$217 million in provisions for credit losses. Analysts projected C$300.5 million.
(Updates shares starting in sixth paragraph.)
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