Bank of Montreal Tops Estimates With Wealth Management Growth

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(Bloomberg) — Bank of Montreal is making progress in its five-year effort to double earnings from wealth management.

  • The Toronto-based lender has been accelerating growth in the U.S., building out services for wealthy clients and expanding its global asset manager, with the aim of getting C$2 billion ($1.5 billion) in annual profit from wealth management by 2023. The bank is making progress, with a 22% increase in earnings from the business in its fiscal first quarter. That helped the company beat analysts’ estimates.

Key Insights

  • Bank of Montreal has built on its wealth business in the past year, including hiring Wells Fargo (NYSE:) & Co.’s Kristi Mitchem to lead the bank’s asset-management division. Wealth-management earnings, which include insurance, climbed to C$291 million.
  • Bank of Montreal’s U.S. banking division, which includes Chicago-based BMO Harris Bank, has increased profits at a faster pace than its Canadian division for most of the past two years. That effort faltered in the first quarter, with earnings from the U.S. personal-and-commercial division falling 21% to C$351 million, hurt by a surge in loan-loss provisions and tighter margins.
  • Interest-rate reductions by the Federal Reserve last year had driven down the net interest margin at Bank of Montreal’s U.S. banking division to its lowest level in a decade. That trend continued in the fiscal first quarter, with margins of 3.34%, the lowest since 2010.
  • Canadian banking remains the company’s largest division, even amid a push to get more earnings from its U.S. operations. Bank of Montreal’s domestic retail bank posted C$700 million of profit in the quarter, up 8% from a year earlier.
  • Bank of Montreal sees scaling up in the U.S. as key to its aspirations of being a top-10 North American investment bank at a time when foreign firms have been retreating. Earnings from the company’s BMO Capital Markets unit climbed 39% to C$356 million in the first quarter as markets and dealmaking improved.

Market Reaction

  • Bank of Montreal shares have fallen 1.2% this year through Monday, underperforming the 2.2% gain for Canada’s eight-company S&P/TSX Commercial Banks Index.

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  • First-quarter net income rose 5.4% to C$1.59 billion, or C$2.37 a share. Adjusted per-share earnings totaled C$2.41 a share, beating the C$2.37 average estimate of 14 analysts in a Bloomberg survey.
  • Read more about Bank of Montreal’s quarterly results here.
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