BMO’s capital-markets revenue drops $974m

Bloomberg

Bank of Montreal (BMO) became another victim of the slowdown in capital markets last quarter, as a slump in equity and debt issuances reduced investment-banking fees.
Capital-markets revenue fell 20% to $974 million in the fiscal third quarter, the Toronto-based company said in a statement on Tuesday. Overall profit missed analysts’ estimates.
Bank of Montreal, which generates a higher portion of its revenue from capital markets than some Canadian banking peers, is taking a hit from plummeting equity markets that have curtailed transactions such as initial public offerings and other share sales. Investment and corporate banking revenue fell 36% to C$451 million.
“On a segmented basis, capital markets mainly drove the lower-than-expected results,” Darko Mihelic, an analyst at Royal Bank of Canada, wrote in a note to clients.
Net income declined 40% to C$1.37 billion, or C$1.95 a share. That figure included a C$694 million after-tax loss generated by markdowns on the value of interest-rate swaps the bank took out to manage the effect of rate changes during the time between the announcement
and closing of its $16.3 billion Bank of the West acquisition.
Those markdowns contributed to negative trading revenue of C$566 million on a tax equivalent basis for the quarter. Adjusted trading revenue was C$358 million, down 31% from a year earlier, hurt by declines in interest rates and equities.
Excluding the markdowns and some other items, profit was C$3.09 a share. Analysts estimated C$3.15.
Bank of Montreal shares have fallen 6.2% this year, compared with a 10% drop for the S&P/TSX Commercial Banks Index.
The capital-markets slump sapped some of the benefit of stronger results from the lender’s US and Canadian personal and commercial banking businesses. Revenue in the US unit rose 12% to $1.23 billion, helped by a jump in commercial loans. The Canadian division’s revenue climbed 13% to C$2.53 billion, with gains in all loan categories.
The net interest margin for its total personal and commercial banking operations widened to 3.04% from 2.93% in the second quarter. Bank of Montreal set aside C$136 million in provisions for credit losses. Analysts estimated C$179.2 million.
“We delivered robust loan growth and margin expansion that drove record revenue in our North American personal and commercial businesses, buffering the impact of challenging market conditions on our capital-markets businesses,” Chief Executive Officer Darryl White said in a statement.