Larger loan loss charge sends Q2 profit lower at BMO

BMO 3-month TSX chart

A big jump in its provision for bad loans, coupled with severance costs for job cuts, contributed to lower profits at Bank of Montreal in the second quarter, the bank said Tuesday.

BMO said it made $358 million, or 61 cents a share, for the quarter. That was down from $642 million, or $1.25 a share, a year earlier.

The bank said its bottom line for the most recent quarter included $372 million in provision for credit losses, which was up $221 million from a year ago.

BMO also booked $80 million in after-tax "capital markets environment charges," and $80 million in severance costs.

Job cuts

The severance charge goes to cover about 1,100 job cuts, as Bill Downe, the bank's president and CEO, said it was "simplifying" its management structure. Reports indicate the cuts will be company-wide and continue through the year. The cuts work out to about three per cent of the bank's total workforce.

The bank's adjusted net income, which factors out those charges, came in at 93 cents a share, which was two cents above the consensus forecast of analysts.

Investors reacted by sending BMO shares up by more than five per cent, to $43.71, in trading on the Toronto Stock Exchange.

The bank said its Canadian personal and commercial banking division reported net income of $350 million, up $30 million or nine per cent year-over-year, while its BMO Capital Markets division posted net income of $249 million, up 33 per cent on the year.

"Our core businesses have again performed well, particularly in the context of a recessionary environment," said Bill Downe, the bank's president and CEO, in a release.

"Conditions remain challenging in credit markets and the capital markets environment. However, we are appropriately positioned to cope with these conditions," he said.

The bank's U.S. personal and commercial banking unit produced a net profit of $21 million, down $9 million, or 31 per cent, from a year ago, when the bank included a $13 million after-tax gain on the initial public offering of Visa Inc.

BMO's private client group reported net income of $62 million, off from $107 million a year earlier, due to weak equity markets and low interest rates.

Despite the lower profit, BMO maintained its quarterly dividend at 70 cents per common share.