BMO misses expectations for high credit loss provisions

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Bank of Montreal on Thursday reported fourth-quarter profit, but it was not enough to meet analyst expectations as a larger-than-expected increase in loan loss provisions took a toll.

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Net income for the three months ended Oct. 31 was $2.3 billion, which was higher than the $1.7 billion earned in the same period last year and resulted in net earnings per share of $2.94.

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However, adjusted for certain conditions, the bank earned $1.5 billion compared to $2.2 billion last year. This resulted in earnings per share of $1.90. Analysts had expected BMO to earn $2.38 per share, according to a Bloomberg survey.

BMO’s total provisions for credit losses (PCL) – the amount of money banks reserve to cover potentially bad loans – rose to $1.5 billion, from $446 million a year earlier.

John Aiken, an analyst at Jefferies Inc., said PCL is 50 percent higher than forecast as BMO appears to be trying to clear the decks.

“BMO appears to be trying to put its credit problems behind it, with very high provisions to use a spike in reserves against loans to mitigate future downturns,” he said in a note on Thursday. “While this may be viewed positively by investors, the level of relief will depend on the management’s comments and the level of belief that the market has that debt has increased significantly.”

The provision for credit losses on nonperforming loans, those the bank may not fully recover, was $1.1 billion, an increase of $699 million. The bank said this was due to higher provisions in all operating segments, particularly in the corporate and commercial portfolio in the United States and in the unsecured segments of the consumer portfolio in Canada.

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PCL on loans, which banks may take back, was $416 million, compared to $38 million last year.

BMO failed to meet analysts’ expectations in the first three quarters of this fiscal year. In the last quarter, its PCL jumped to $906 million from $492 million in the same period last year.

“Our overall results contributed to higher loan loss provisions, and we expect quarterly provisions to reach 2025 as business conditions improve,” CEO Darryl White said in a statement.

“We are entering 2025 with a strong foundation and significant balance power to grow. We are confident in the execution of our strategy to drive profitable growth and improved return on equity over the medium term.”

BMO increased its quarterly dividend by four cents to $1.59 per share.

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