By Andrea Hopkins
{TORONTO (Reuters) - Bank of Montreal posted a stronger than expected quarterly profit on Tuesday, and said it was cutting 1,100 jobs, sending Canadian bank shares higher as investors bet that other big lenders reporting this week will also notch profits.
Canada's fourth-largest bank said it was cutting its 37,000-strong workforce by 3 percent across all operating groups in a move it said would save money down the road.
"The changes are expected to reduce ongoing costs and position our businesses to grow revenue and improve profitability with no reduction in our customer service," Chief Executive Bill Downe said in a statement.
Provisions for bad loans at BMO were not as high as some analysts had expected, illustrating how the nation's banking sector remains far healthier than that of its global peers.
"I think it was almost a collective sigh of relief from the marketplace today," said Edward Jones analyst Craig Fehr. "No outsized losses, no huge surprises ... I think the implication is the banks can continue to perform fairly well within their core banking operations."
Bank of Montreal shares rose 3.4 percent to C$42.98 on the Toronto Stock Exchange, while the broader financial index powered 2.8 percent higher, as it kicked off earnings season for the nation's Big Six banks.
BMO reported its profit fell 44 percent to C$358 million ($317 million), or 61 Canadian cents a share, in the second quarter, ended April 30. That was down from C$642 million, or C$1.25 a share, a year earlier.
The big drop in profit was shrugged off in part because the results included one-time charges of C$80 million for losses in BMO's backup financing operations and C$80 million in severance costs for the job cuts, which BMO said will be made at both the head office and corporate support levels.
Excluding those items, its adjusted cash earnings of 93 Canadian cents per share came in just above expectations.
The bank set aside a big chunk of money to cover bad loans, considered the biggest headwind for the recession-weary sector, but the provisions for credit losses were not as high as some analysts had forecast.
Analysts said the biggest question that may come out of the earnings is whether BMO and the other Canadian banks can continue to limit loan losses as economic pain drags on.
"BMO's results were solid and better than most market participants anticipated (us included). While this should benefit its valuation in the near term, we remain concerned with BMO's credit exposure," Dundee Securities analyst John Aiken said in a research note.
FAT CAPITAL LEVELS
The global economic slump is taking its toll on the loan portfolios of Canadian banks, as consumers and businesses struggle to repay debts amid rising unemployment.
Bank of Montreal said the money it set aside to cover bad loans rose to C$372 million, up C$221 million from a year ago. It said it expects the credit environment "to continue to be challenging" through 2009.
Analysts sifted through the bank's results for hints of what Canada's other big banks will report later in the week.
"There was nothing too troubling or surprising in BMO's results, which will likely translate to the other banks. This will allow the banks to sustain their valuations in the near term," Aiken said.
Royal Bank of Canada , Toronto-Dominion Bank , Bank of Nova Scotia , Canadian Imperial Bank of Commerce and National Bank of Canada report second-quarter results on Thursday and Friday.
The weakness on BMO's loans side was offset by gains in its capital markets division, where income surged 33 percent, and in its Canadian personal and commercial banking, where income was 9 percent higher than a year earlier.
The resilience in what analyst Fehr called "plain vanilla banking" -- consumer and business lending, as well as everyday deposit-taking and branch operations -- bodes well for lenders that were bloodied by investment banking losses last year.
Net interest income was also a bright spot, increasing 14 percent. Banks make money by borrowing it cheaply from deposit-making customers and lending it at a higher rate.
"I expect (the expansion of net interest margins) to be a trend for most of the quarter and more importantly a trend that we start to see throughout 2009," Fehr said.
The quarter's profit boosted BMO's Tier 1 capital ratio to 10.7 percent, well above global competitors and the minimum required by regulators.
As expected, the bank left its quarterly dividend unchanged at 70 Canadian cents per common share.}
($1=$1.12 Canadian)
(Reporting by Andrea Hopkins; editing by Rob Wilson)
http://ca.news.yahoo.com/s/reuters/090526/business/cbusiness_us_bankofmontreal
