Bank of Montreal Misses Estimates on Loan Losses, Severance Pay

Bank of Montreal put aside more money for potentially sour loans and severance costs as it absorbs Bank of the West during a difficult period for US regional lenders.

(Bloomberg) — Bank of Montreal put aside more money for potentially sour loans and severance costs as it absorbs Bank of the West during a difficult period for US regional lenders. 

The Canadian bank earned C$2.78 per share on an adjusted basis in the fiscal third quarter, weighed down by weaker results in its US personal and commercial division. Analysts surveyed by Bloomberg were expecting C$3.13 per share. 

Bank of Montreal closed the Bank of the West acquisition a little more than a month before Silicon Valley Bank collapsed in March, an event that sparked panic across the regional banking sector and left some banks open to higher deposit costs and regulatory measures. 

Canada’s third-largest bank booked C$492 million ($361 million) in provisions for credit losses, nearly 30% more than analysts had projected. Much of the swing in loan losses was in its US business. BMO’s loan portfolio is more heavily weighted in commercial loans than some of its peers, which analysts had flagged as a risk that could drag on results.  

“We continue to deliver solid financial results reflecting the strength, diversity and active management of our businesses in an evolving environment,” Chief Executive Officer Darryl White said in a statement Tuesday. 

The bank paid C$162 million in severance costs during the quarter, which ended July 31. It let go of staff at its BMO Capital Markets unit in a response to slow deal flow. 

Net interest margin, or the difference between what a bank earns on loans and what it pays for funding, was 1.68%, 1 basis point below the second quarter.

Bank of Montreal shares are down 7.1% so far this year, worse than the 4.1% drop of the S&P/TSX Composite Commercial Banks index. 

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.