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Bank of Montreal Profit Declines on Loan Losses

By Doug Alexander

May 27 (Bloomberg) -- Bank of Montreal, the first Canadian bank to report earnings, said profit fell for a fourth straight quarter on rising loan losses and indicated it will set aside more money this year as bad loans increase.

Net income for the period ended April 30 fell 4.3 percent to C$642 million ($649 million), or C$1.25 a share, from C$671 million, or C$1.29, a year earlier, the Toronto-based bank said today in a statement. It's the first time since 2002 that profit has dropped four consecutive quarters.

Canada's fourth-biggest bank joins other Canadian lenders that are expected to post a decline in profit on a slowdown in investment banking, rising loan losses and debt writedowns. Average profit before one-time items at the six biggest banks will probably drop 5 percent, according to Robert Sedran, an analyst at National Bank Financial in Toronto.

``With BMO, traditionally the low provision bank, increasing its provision guidance, we believe that the other banks will face earnings headwinds in the coming quarters,'' Dundee Capital Markets analyst John Aiken said in a note to clients.

Excluding one-time items, profit was C$1.26 a share, Bank of Montreal said. That beat the median estimate of C$1.21 a share from 14 analysts in a Bloomberg survey. Sedran said the bank earned C$1.20 a share before one-time items, missing his C$1.22 a share estimate.

Stock Declines

Bank of Montreal fell 10 cents to C$48.90 at 10:22 a.m. on the Toronto Stock Exchange, leading other bank stocks lower. The stock has fallen 13 percent this year, the worst performer among Canada's six biggest banks.

The lender set aside C$151 million for bad loans in the second quarter, up from C$59 million a year ago. Revenue rose 3.6 percent to C$2.62 billion. The bank expects loan loss provisions to rise from the rate of C$170 million reported in the first quarter as loan defaults tied to U.S. real estate rise and the Canadian economy expands at its slowest pace in 16 years in 2008.

Profit was lifted by C$42 million in net recoveries from past debt writedowns. This is the first quarter since Chief Executive Officer Bill Downe took over in March 2007 that the bank hasn't reported writedowns or charges on debt investment or natural gas bets. The bank recovered C$85 million pretax from its Apex and Sitka asset-backed trusts due to ``increased likelihood of successful restructuring'' and C$35 million for derivatives and debt investments.

Additional Writedowns

The bank was expected to report writedowns of C$200 million this quarter, according to TD Newcrest analyst Jason Bilodeau, adding to the C$1.66 billion already reported in the past five quarters.

``Our outlook is improving as there are indications that concerns are easing in credit markets as credit spreads are trending towards more normal levels,'' Downe said in the statement.

Canadian consumer banking profit rose 1.2 percent to C$331 million from a year ago, while profit from its Chicago-based Harris consumer bank climbed 3.4 percent to C$30 million.

Earnings from the private-client group, which includes brokerage, investing services and mutual funds, rose 10 percent to C$109 million.

Investment banking profit fell 7.6 percent to C$182 million from a year ago on a slump in mergers and net stock sales. BMO Capital Markets arranged $695.8 million in stock sales, down from $1.43 billion a year earlier, according to Bloomberg data.

Bank of Nova Scotia, Canada's second-biggest lender, reports results later today. Toronto-Dominion Bank reports tomorrow, followed by Royal Bank of Canada, Canadian Imperial Bank of Commerce and National Bank of Canada on May 29.
http://www.bloomberg.com/apps/news?pid=20601082&sid=ay5z342zlY_E&refer=canada