Bank of Montreal Reports Weaker-Than-Expected Quarterly Profit, Warns of Continued Pressure from Interest Rates

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Bank of Montreal (BMO) disclosed weaker-than-anticipated quarterly profit on Wednesday, attributing the shortfall to elevated loan loss provisions. The bank also cautioned that reduced central bank interest rate cuts could further strain consumers and businesses.

This disappointing financial performance marks the fifth consecutive profit miss for the Canadian lender. The results were also impacted by challenges in the United States market, where BMO had sought growth opportunities by acquiring regional player Bank of the West for $16.3 billion last year. This strategic move aimed to diversify BMO’s revenue streams amidst intensifying competition and stringent regulations in the domestic market.

A fiercely competitive deposit environment in both Canada and the U.S. compelled banks to offer attractive rates to retain customers, adversely affecting the net interest income of BMO’s U.S. segment. Adjusted net income for the unit declined by 24%.

CEO Darryl White highlighted the ongoing difficulties faced by consumers and businesses due to sustained higher interest rates and a slowing economy. He anticipates a more restrained approach to rate cuts by both the Bank of Canada, expected to commence rate reductions this summer, and the U.S. Federal Reserve, likely to follow suit in the fall.

The series of rate hikes since early 2022 have exacerbated the strain on customers’ mortgages and auto loans, compounded by the elevated cost of living. Consequently, lenders have been compelled to allocate greater funds for potential loan losses, with BMO reporting loan loss provisions of C$705 million, surpassing analysts’ expectations.

Despite these challenges, BMO’s capital markets business emerged as a bright spot, witnessing a 23% increase in earnings driven by heightened interest rate trading and debt and equity issuance activity. However, KBW analyst Mike Rizvanovic noted that the credit losses miss and underwhelming U.S. results overshadowed an otherwise roughly in-line quarter for the bank.

In contrast, BMO’s smaller peer, National Bank of Canada, surpassed analysts’ profit estimates, primarily fueled by robust performance in its capital markets and wealth management divisions. National Bank’s capital markets unit is anticipated to witness increased activity in the latter half of the year as mergers and acquisitions gain momentum.

While National Bank’s earnings per share exceeded expectations at C$2.54, BMO reported adjusted net income per share of C$2.59, falling short of the average estimate of C$2.77.