Bank of Montreal Reports Lower Profit and Increased Loan Loss Provisions
Ongoing Challenges and Future Outlook
On Tuesday, the Bank of Montreal (BMO) announced it would need to continue setting aside funds for loans expected to go unpaid, following a sixth consecutive quarter of lower-than-expected profit. Despite this, BMO anticipates a recovery beginning in 2025, driven by expected cuts in interest rates and stabilization in unemployment, which should alleviate some of the financial pressures on consumers and businesses struggling with loan repayments.
Third-Quarter Loan Loss Provisions
The bank reported third-quarter loan loss provisions exceeding analysts’ forecasts, partly due to impaired provisions for two significant customers—one in the U.S. and one under its Capital Markets business. BMO’s CEO, Darryl White, explained that recent impairments resulted from a mix of prolonged high interest rates, economic uncertainty, and shifting consumer preferences.
Sector-Specific Impairments
Fifteen accounts accounted for about half of the year-to-date impaired provisions within its wholesale portfolio, White noted. Chief Risk Officer Piyush Agrawal described the rise in loss provisions within the retail sector as “systemic” and emphasized that the issues in wholesale were not sector-specific. He assured that the bank had thoroughly reviewed its larger client loans.
Comparison with Peers
In contrast, the Bank of Nova Scotia (Scotiabank), Canada’s fourth-largest bank by market capitalization, reported better-than-expected profit, bolstered by strong performance across its domestic and international operations in North America, Latin America, and the Caribbean. BMO’s shares fell 6% in early Toronto trading, while Scotiabank’s shares increased by approximately 2.5%.
Expansion Strategies and Market Challenges
Canadian banks, including BMO and Scotiabank, have pursued growth in the U.S. market due to limited opportunities at home. BMO acquired U.S. regional lender Bank of the West for $16.3 billion last year. Meanwhile, Scotiabank has expanded into less-served areas in South America and Latin America, focusing on the Pacific Alliance trade bloc and recently investing $2.8 billion in U.S. regional bank KeyCorp.
Financial Performance and Analysts’ Views
Despite these expansions, Canadian banks face challenges in the competitive U.S. market, necessitating higher spending to retain deposits and boost loan growth. BMO, Canada’s third-largest lender, reported a jump in credit loss provisions to C$906 million ($672.8 million) for the third quarter, up from C$492 million a year earlier. Analysts had anticipated C$734 million. BMO’s adjusted net income fell 7% to C$1.98 billion, with earnings per share at C$2.64, missing analysts’ expectations of C$2.76.
In comparison, Scotiabank’s adjusted income decreased 0.7% to C$2.19 billion, and it earned C$1.63 per share, slightly above estimates. Jefferies analyst John Aiken noted that the stability in Scotiabank’s international operations should provide some support.