BMO misses expectations on higher credit loss provisions

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The Bank of Montreal on Thursday reported fourth-quarter earnings, but they were not enough to meet analysts’ expectations as a larger-than-expected rise in credit loss provisions took its toll.

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Net income for the three-month period ended October 31 was $2.3 billion, higher than the $1.7 billion generated during the same period last year and resulting in net earnings per share of $2.94.

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However, after adjusting for certain conditions, the bank made profits of $1.5 billion compared to $2.2 billion last year. This resulted in earnings per share of $1.90. Analysts had expected BMO to earn $2.38 per share, according to a Bloomberg survey.

BMO’s total allowance for credit losses (PCL) — the amount of money banks set aside to address potentially bad loans — rose to $1.5 billion, up from $446 million last year.

PCL was 50 percent more than expected, as BMO appears to be trying to clear the decks, said John Aiken, an analyst at Jefferies Inc..

“BMO appears to be trying to put its credit issues behind it, with increased performance-related provisions coinciding with higher reserves against completed loans to support future deterioration,” he said in a note on Thursday. “While investors are likely to view this favorably, the degree of comfort will depend on management’s commentary coupled with the level of conviction that the market has peaked.”

The provision for credit losses on non-performing loans, which the bank may not recover in full, was $1.1 billion, an increase of $699 million. The bank said this was due to higher provisions across all operating segments, primarily in the corporate and commercial portfolio in the United States and in the non-secured segments of the consumer portfolio in Canada.

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The value of completed loans on executed loans, which banks are likely to recover, amounted to $416 million, compared to $38 million last year.

BMO failed to meet analyst expectations in the first three quarters of this fiscal year as well. In the previous quarter, PCL’s losses jumped to $906 million from $492 million in the same period last year.

“Our overall results were impacted by higher credit loss provisions, and we expect quarterly provisions to decline through 2025 as the business environment improves,” CEO Darrell White said in a statement.

“We enter 2025 with a strong foundation and significant balance sheet capacity for growth. We are confident in executing on our strategy to drive profitable growth and enhance return on equity over the medium term.

BMO increased its quarterly dividend by four cents to $1.59 per share.

• Email: nkarim@postmedia.com

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