Today’s News
Bank of Montreal (BMO) on Tuesday issued a warning that it will likely need to continue setting aside funds to cover potential loan losses after reporting its sixth consecutive quarter of lower-than-expected profits.
The Canadian lender’s shares dropped 6% in Toronto, prompting a downgrade in its stock rating—the second one this month—due to growing concerns about credit quality.
Image Source: Reinsurance News
Jefferies analyst John Aiken downgraded BMO’s stock from “buy” to “hold,” stating, “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.”
In the third quarter, BMO’s loan loss provisions exceeded analysts’ predictions, partly due to impaired loans from two customers—one in the United States and another under its Capital Markets division. BMO CEO Darryl White told analysts, “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.”
White also noted that 15 accounts were responsible for about half of the year-to-date impaired provisions in its wholesale portfolio. Chief Risk Officer Piyush Agrawal emphasized that while the increase in retail sector loss provisions was “systemic,” the issues in the wholesale sector were not specific to any particular industry. “I’m confident we’ve looked through our files,” Agrawal said regarding loans to larger clients.
BMO, Canada’s third-largest lender, saw its provision for credit losses rise to CAD 906 million (USD 672.8 million) in the third quarter, up from CAD 492 million (USD 365.3 million) a year earlier, surpassing analysts’ expectations of CAD 734 million (USD 545 million). White said the bank expects to see a recovery beginning in 2025, as central banks cut interest rates and unemployment stabilizes, easing the pressure on consumers and businesses struggling with loan repayments.
Image Source: Financial Post
Meanwhile, Bank of Nova Scotia (Scotiabank), BMO’s peer, outperformed profit expectations, driven by strong growth in its domestic and international operations, particularly in North and South America. Scotiabank’s shares rose 2.5%.
Canadian banks, including BMO and Scotiabank, have sought growth in the U.S. and other international markets due to limited opportunities at home. BMO’s USD 16.3 billion acquisition of U.S. regional lender Bank of the West last year and Scotiabank’s focus on the Pacific Alliance trade bloc illustrate their strategies for expanding beyond Canada.
However, BMO and other Canadian banks with a U.S. presence have faced challenges in a highly competitive market, forcing them to spend more to retain deposits and grow loans.
TD Securities analyst Mario Mendonca noted, “The weakness was widespread with all segments showing some deterioration.”
BMO reported earnings of CAD 2.64 per share (USD 1.96) , falling short of analysts’ expectations of CAD 2.76 (USD 2.04) . Scotiabank reported a 0.7% decrease in adjusted income to CAD 2.19 billion (USD 1.63 billion), earning CAD 1.63 (USD 1.21) per share, just above analysts’ estimates.
(USD 1 = 1.3466 Canadian dollars)
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