BMO profit rises 14% in Q4 as revenues climb

While profits were above the $4.44 billion in the fourth quarter last year, the overall results were further evidence that it will be some time before the banks return to the blockbuster profit growth they enjoyed before the recession.

On Tuesday, Bank of Montreal (TSX:BMO) was the final major bank to issue fourth-quarter earnings in a period that has been mildly positive across the industry, posting a 14% increase in profits to $739 million or $1.24 per diluted share.

The earnings compared with $647 million or $1.11 per diluted share a year ago.

The bank said its profit amounted to $1.26 on a cash per share basis, up from $1.13 per share a year ago and about five cents above analyst expectations, according to a survey by Thomson Reuters.

Revenue increased 8% to $3.23 billion, above expectations of $3.08 billion.

BMO’s personal and commercial banking division posted net income of $420 million, an increase of 5.5% from a year earlier, as revenues in its personal, commercial and credit cards businesses all strengthened.

“We believe there is a credit recovery underway and have confidence in an overall continued positive trend,” chief executive Bill Downe told analysts in a conference call.

Downe said the bank has increased its target for growth of its earnings per share from 10% to 12%.

“If you reflect on the last three years, I think there have been headwinds in markets, a slow economy and obviously there’s been provisions for credit losses at elevated levels,” he said.

“As we look forward for maybe the same period, three years or so, what I think (what) we’re going to see is a gradual pick up in economic growth.”

“We do expect we’re going to see a moderation in credit provisions and we think realistically, in this time frame, a slightly higher EPS growth rate is achievable. We also take confidence that over the last eight quarters we’ve seen good fundamental growth in all four of our major business groups,” Downe said.

In the U.S. retail banking division, where BMO has its Chicago-based Harris Bank subsidiary, the bank reported $37 million in profit, a drop of 21% from a year ago affected by bad loans and higher provisions for credit losses.

Bank of Montreal kept its dividend unchanged at 70 cents per share.

During the fourth quarter, one of the more stellar bank performers was National Bank (TSX:NA), which raised its dividend, though it is considered the sixth biggest bank in the country and is considerably smaller than its major brethren.

Royal Bank (TSX:RY) was widely considered the most significant underperformer as it disappointed investors with its quarterly report and missed analyst expectations by a wide margin. TD Bank (TSX:TD) also fell short of average estimates.

For the full year, Canada’s five biggest banks brought in $19.41 billion in profits, soaring above the $13.52 billion reported in 2009 when the economic downturn ravaged results.

In the quarter, BMO’s provisions for credit losses were $253 million, down from $386 million a year ago, but up from $214 million in the third quarter.

“We generated good revenue growth, momentum is visible across all of our business groups, loan loss trends are generally positive, return on equity continues to increase and our capital position remains strong,” Downe said.

BMO Capital Markets, the bank’s investment banking division, earned $216 million, down $44 million, hurt by higher provisions for credit losses and spending on expanding its business.

The bank’s private client group earned $131 million, up $25 million from a year ago.

Return on equity for the quarter was 15.1%, up from 14% a year ago.

Barclays Capital analyst John Aiken said the bank’s provisions for bad loans were a disappointment for the quarter, but not a major concern.

“While BMO did suffer similar expense growth as its peers, it was lower than the group and the bank was able to offset it with strong revenue growth,” Aiken wrote in a note to clients.

“Capital markets and private client had standout quarters and although retail banking on both sides of the border held in they did both report modest sequential declines in earnings.”

For the financial year, net income rose 57% to $2.81 billion while revenues were ahead 10% at $12.2 billion.

BMO’s tier one capital ratio was 13.45%.

Bank of Montreal has more than 38,000 employees across its North American operations, which include retail banking, wealth management and investment banking.

It’s Harris Bank subsidiary has more than 300 branches in Illinois, Indiana, and Wisconsin as well as locations in Arizona, California, Florida, Georgia, New York, New Jersey, Texas, Virginia and Washington.

Earlier this year, Downe said the company was exploring options to grow its business in China, including the possibility of starting a Chinese wealth management division.

The division allows BMO to offer its services to Chinese citizens who plan to emigrate to Canada, as well as multinational businesses looking to expand in the region.

BMO shares were up $1.71 at $61.71 on the Toronto Stock Exchange on Tuesday afternoon.