Bank of Montreal on Wednesday missed analysts’ estimates for quarterly profit, hurt by weakness at its U.S. segment and as it sets aside more funds to cover for potentially souring loans in a high interest rate environment.
The U.S. segment, which bring in roughly about a third of BMO’s total income, has been a key market for the lender as it splurged $16.3 billion to acquire regional lender Bank of the West last year that helped expand its network to add 1.8 million customers and 500 branches on the west coast.
The move came as Canadian banks look for opportunities to diversify south of the border, seeking alternative paths for growth as competition intensifies in a saturated market at home in a highly regulated market.
BMO said the U.S. segment’s adjusted net income fell 24 per cent, hit by lower net interest income, or the difference between what a bank earns on loans and pays out for deposits, due to lower margins.
Lenders have been competing on deposit rates to prevent consumers from moving their money to alternative high-yielding funds amid high interest rates.
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Bright spots this quarter were the bank’s Canadian unit where earnings rose seven per cent on an adjusted basis and the capital markets segments which reported a 23 per cent rise in net income, driven by higher interest rate trading and higher debt and equity issuance activity.
Lenders have had to set aside more funds for loan loss provisions in recent quarters. High interest rates have pressured consumers paying mortgages and auto loans as they also cope with elevated costs of living.
Overall, loan loss provisions came in at C$705 million ($515.80 million) for the second quarter, compared with analysts’ estimate of C$563.3 million, according to LSEG data.
NII for BMO fell 6% to C$4.52 billion.
“A tough quarter for BMO,” KBW analyst Mike Rizvanovic said, noting the credit losses miss and underwhelming U.S. results were overshadowing an otherwise “roughly in-line quarter.”
Meanwhile, smaller peer National Bank of Canada surpassed analysts’ estimates for quarterly profit largely powered by its capital markets and wealth management
business.
National Bank earned C$2.54 per share, topping the average estimate of C$2.45.
BMO’s adjusted net income fell to C$2.03 billion, in the three months ended April 30, from C$2.19 billion. On a per share basis BMO earned C$2.59 per share, compared with estimates of C$2.77.
($1 = 1.3668 Canadian dollars)
(Reporting by Arasu Kannagi Basil and Pritam Biswas in Bengaluru and Nivedita Balu in Toronto; Editing by Shailesh Kuber, Tasim Zahid and Chizu Nomiyama)