BMO beats expectations despite profit fall

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The Bank of Montreal’s headline earnings fell in the first quarter following adjustments to its Bank of the West deal.

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The bank’s reported net income clocked in at $247 million in the three months ending Jan. 31 compared to $2.9 billion from a year earlier largely due to valuation adjustments on its acquisition of BNP Paribas SA’s Bank of the West.

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On an adjusted basis, BMO earned $3.22 per share, or $2.3 billion, falling about 12 per cent from a year earlier, but managed to beat Bloomberg analyst expectations of about $3.16 per share.

The discrepancy between the earnings comes from a pre-tax loss of $2.01 billion from rising interest rates and the management between the announcement and the closing of the US$16.3 billion Bank of the West deal announced in December 2021. This is compared to pre-tax revenue of $562 million a year ago, as well as $239 million pre-tax acquisition and integration costs.

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It’s a mark-to-market loss that the bank will treat as an adjusting item comprising about $1.63 billion recorded in non-interest revenue. Since the announcement of the deal, the U.S. Federal Reserve raised the federal funds rate a cumulative 4.5 per cent.

The bank reported $217 million in provisions for credit losses, or the amount of funding set aside for bad loans, in the first quarter compared to a recovery of $99 million a year ago.

The Canadian personal and commercial banking segment’s adjusted profit slipped two per cent year-over-year to $980 million despite rising revenue as higher expenses and provisions for credit losses grew. The U.S. segment’s adjusted profit rose three per cent to $699 million on a stronger U.S. dollar.

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Volatile markets hit the Bank of Montreal’s wealth management and capital markets businesses in the first quarter. The bank’s wealth management segment adjusted profit fell by 12 per cent year-over-year to $278 million. BMO Capital Markets’ adjusted net income fell by 28 per cent since the same time last year to $510 million.

The bank’s first-quarter expenses also included $371 million in tax expenses stemming from the one-time 15 per cent bank and life insurer tax the federal government enacted in its 2022 budget.

“We had a very good start to the year, with continued strong operating performance in our Canadian and U.S. personal and commercial businesses and improving momentum in BMO Capital Markets, benefitting from our strategic investments in talent and technology,” said BMO chief executive Darryl White in a press release.

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