Bank of Montreal, Scotiabank Profits Fall on Loans

Tuesday, 26 August, 2008

Bank of Montreal and Bank of Nova Scotia, the first Canadian banks to report third-quarter earnings, said profits declined more than analysts forecast on rising loan losses.

Bank of Montreal, Canada's fourth-biggest bank, said net income for the period ended July 31 fell 21 percent to C$521 million ($497 million), or 98 cents a share, its fifth straight profit decline. Scotiabank, the No. 3 lender, said profit dropped 1.9 percent to C$1.01 billion, or 98 cents a share.

Canada's six biggest banks will probably set aside twice as much money for bad loans this quarter amid a U.S. housing slump and the slowest economic growth in Canada since 1992, analysts estimate. Bank of Montreal set aside C$484 million for bad loans, five times more than a year earlier, while Scotia bank’s provisions rose 73 percent to C$159 million.

``The trend is still down,'' said Jim Hall of Mawer Investment Management in Calgary, which oversees C$5.4 billion in assets including banks. ``This quarter's bad, next quarter's probably not going to be much prettier.''

Bank of Montreal fell 12 cents to C$43.94 at 4:10 p.m. trading on the Toronto Stock Exchange. Scotiabank fell C$1.19, or 2.5 percent, to C$46.45.

Missed Estimates Bank of Montreal's profit excluding one-time items was C$1 a share, the Toronto-based bank said, missing the median estimate of C$1.20 a share from 12 analysts in a Bloomberg survey. Scotiabank, also based in Toronto, earned 99 cents a share on that measure, according to National Bank Financial analyst Robert Sedran, missing his C$1.04 estimate.

Profit at Bank of Montreal's BMO Capital Markets investment bank increased 34 percent to C$259 million from a year earlier, as trading revenue surged more than fivefold to C$220 million. Results in the unit were pared by C$19 million in costs for job cuts, and pretax write downs of C$134 million for the declining value of debt investments, preferred shares and Canadian asset- backed commercial paper.

Bank of Montreal has taken C$898 million in debt-related write downs in the past four quarters, joining other banks amid a global credit crunch that has spread from the U.S. as defaults on sub prime mortgage loans surge.

Bank of Montreal's provisions for loan losses included C$247 million for two corporate loans linked to the U.S. housing market, the company said.

Debt Write downs The world's biggest financial companies have disclosed more than $500 billion in losses and write downs from investments tied to U.S. sub prime mortgages since 2007. Canada's banks have collectively taken more than C$10.1 billion in debt write downs in the past year, with more expected in the third quarter from Royal Bank of Canada and Canadian Imperial Bank of Commerce.

Bank of Montreal's Canadian consumer-banking profit fell 3.7 percent to C$343 million on higher taxes and costs for adding branches and hiring mortgage specialists and financial planners. Profit from its Chicago-based Harris consumer bank rose 12 percent to C$28 million, while profit from its private- client group, which includes brokerage, investing services and mutual funds, rose 7.8 percent to C$110 million.

Scotia bank’s earnings from Canadian banking jumped 17 percent to a record C$463 million on increases in deposits and mortgages. International banking profit, from about 50 countries including Chile and Jamaica, climbed 21 percent before preferred dividends to C$335 million.

Economic Slowdown Profit at Scotia Capital rose 6 percent to C$297 million in the period, as revenue from its oil-advisory unit Scotia Waterous and fixed-income fees offset a decline in derivatives trading.

Slower economic growth globally means Scotiabank is ``unlikely'' to meet its target of boosting earnings per share by 7 percent to 12 percent this year, the bank said. Loan-loss provisions will increase over the ``medium-term'', although the bank's domestic operations haven't seen any spillover from the U.S. credit crisis, Chief Risk Officer Brian Porter told investors today.

``Scotiabank remains the best of a beleaguered bunch in the Canadian banking sector,'' Merrill Lynch & Co. analyst Sumit Malhotra wrote in a note to investors today.

Scotia bank’s revenue rose 5.3 percent to C$3.48 billion, while Bank of Montreal's climbed 7.5 percent to C$2.75 billion.

CIBC, the No. 5 bank, reports results tomorrow. Royal Bank of Canada, the country's largest bank, Toronto-Dominion Bank, the second biggest, and No. 6 National Bank of Canada report on Aug. 28

Source: http://www.bloomberg.com/