Canada’s BMO misses profit estimates on higher provisions, US weakness

By Nivedita Balu and Arasu Kannagi Basil

(Reuters) -Bank of Montreal missed analysts’ estimates for quarterly profit on Wednesday, hemmed in by weakness at its U.S. segment and higher loan loss provisions, sending its shares down 6%.

The U.S. is a focus market and the Canadian lender last year splurged $16.3 billion to buy regional player Bank of the West, seeking alternative paths for growth as competition intensified in a saturated and highly regulated market at home.

A competitive deposit environment on both sides of the border has forced lenders to offer attractive rates to prevent consumers from fleeing to alternative high-yielding funds.

That hurt the U.S. segment’s net interest income, or the difference between what a bank earns on loans and pays out for deposits. Adjusted net income at the unit fell 24%.

However, the bank expects the impact on net interest margin to be “more modest” in the coming quarters.

CEO Darryl White said consumers and businesses continue to be impacted by prolonged higher interest rates and a slowing economy.

White now expects fewer and delayed rate cuts this year, with the Bank of Canada expected to begin lowering rates this summer and the U.S. Federal Reserve in the fall at a moderated pace.

The higher mortgages and auto loan rates have added to the pressure on customers as they also cope with elevated costs of living, forcing lenders to set aside more funds for potentially souring loans.

Overall, second-quarter loan loss provisions of C$705 million ($515.80 million) was higher than analysts’ estimate of C$563.3 million, according to LSEG data.

A bright spot was the bank’s capital markets business. The segment reported a 23% rise in net income, driven by higher interest rate trading and debt and equity issuance activity. Net income at the Canadian unit rose 7%.

“A tough quarter for BMO,” KBW analyst Mike Rizvanovic said, noting the credit losses miss and underwhelming U.S. results were overshadowing an otherwise “roughly in-line quarter.”

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Meanwhile, smaller peer National Bank of Canada surpassed analysts’ estimates for quarterly profit, largely powered by its capital markets and wealth management business, sending its shares up 1.5%.

National Bank earned C$2.54 per share, topping the average estimate of C$2.45.

BMO’s adjusted net income fell to C$2.03 billion in the three months ended April 30, from C$2.19 billion a year earlier. On a per share basis, BMO earned C$2.59, compared with estimates of C$2.77.

($1 = 1.3668 Canadian dollars)

(Reporting by Arasu Kannagi Basil and Pritam Biswas in Bengaluru and Nivedita Balu in Toronto; Editing by Chizu Nomiyama and Sriraj Kalluvila)