Bank of Montreal warns of credit pressures after profit miss, shares fall
Bank of Montreal on Tuesday warned it would need to continue to set aside money for loans that are unlikely to be repaid, after the Canadian lender reported lower-thanexpected profit for the sixth time in a row. Shares fell 6 per cent in Toronto and triggered a rating downgrade, the stock's second in a month, on a worsening credit outlook.
"We freely admit that we may be closing the barn door after the animals have escaped, the pace of deterioration in credit and BMO's relative over-exposure to commercial infer ongoing pressure to the bank's earnings," Jefferies analyst John Aiken wrote, downgrading the stock to "hold" from "buy."
Third-quarter loan loss provisions were higher than analysts had forecast, in part due to impaired provisions for two customers, one in the
United States and one recorded under its Capital Markets business.
"We've investigated the circumstances that led to recent impairments, and the conclusion is, for some customers, the combination of prolonged high interest rates, economic uncertainty and changing consumer preferences had an acute impact," BMO CEO Darryl White told analysts. Fifteen accounts drove about half of the year to date impaired provisions in its wholesale portfolio, White said.
Chief Risk Officer Piyush Agrawal said the increase in loss provisions in the retail sector was "systemic" and in wholesale, he said it was not "thematic to a sector." "I'm confident we've looked through our files," he said about the bank's loans to larger clients or companies. About 43 per cent of its U.S. revenue comes from the commercial segment while about a quarter of overall profit comes from the United States.
The lender said it would start to see a recovery in 2025 as central banks cut interest rates and unemployment stabilizes which would ease some pressure for consumers and businesses falling behind on their loan repayments.
Meanwhile, peer Bank of Nova Scotia, Canada's fourth-largest bank by market capitalization, beat profit estimates, powered by strong growth at its businesses at home and overseas, which spans across North America, Latin America and the Caribbean. Its shares were up 2.5 per cent.
Canadian banks have sought growth south of the border, expanding through acquisitions or brick by brick as opportunities in a saturated and highly regulated market at home were limited.
BMO purchased U.S. regional lender Bank of the West for $16.3 billion last year, while Scotiabank looked further down, expanding in largely underbanked areas in South America and Latin America, focusing on the Pacific Alliance trade bloc.