Bank of Montreal and Scotiabank both exceeded expectations and are optimistic for 2021
The Bank of Montreal and Scotiabank on Tuesday released first quarter results for major Canadian banks by beating expectations.
Both banks said economic recovery driven by coronavirus vaccine rollout will boost performance during the year, although BMO executives also said U.S. customers benefit from faster vaccine rollout. compared to Canada.
BMO Financial Group said its first-quarter profit was up from a year ago, before the pandemic began, as customers found ways to repay their loans.
BMO exceeded expectations by reporting earnings of nearly $ 2.02 billion or $ 3.03 per diluted share for the quarter ended Jan. 31, compared to $ 1.59 billion or $ 2.37 per diluted share at the same period a year earlier.
Businesses weather the storm, says BMO
The gain came as BMO’s provisions for credit losses for the quarter stood at $ 156 million, down from $ 349 million a year ago and $ 432 million in the fourth quarter of its fiscal 2020.
“We don’t typically lend to people who can’t weather storms,” said Patrick Cronin, chief risk officer, on a conference call with financial analysts.
Cronin gave the example of a restaurant that managed to break even during foreclosure restrictions through take-out, deliveries, cost cuts, government support and cash reserves.
“I wouldn’t say they are thriving. But you know, we’re seeing real stability and in some cases improving credit metrics as they find ways to weather the storm. low wastage rate. “
Managing Director Darryl White noted that more than 40 percent of total bank profits came from the U.S. segment of the business, calling it a key driver of future profit growth.
White said the United States had made “good progress” in rolling out the COVID-19 vaccine and that the bank had raised its expectations for economic growth south of the border. The bank said 43% of total adjusted net income came from the United States, 51% from Canada and 6% from elsewhere.
Leaders said they were still positive on longer-term Canadian affairs, but that Canada could ‘lag’ the United States in terms of the labor market recovery amid a rapid pace. slower vaccination.
Revenue for the quarter totaled nearly $ 6.98 billion, compared to nearly $ 6.75 billion in the first quarter of last year.
A “ strong beat ” for banking profits
On an adjusted basis, BMO says it earned $ 3.06 per diluted share, up from adjusted earnings of $ 2.41 per diluted share in the same quarter last year.
Analysts on average expected adjusted earnings of $ 2.15 per share for the quarter, according to financial data firm Refinitiv.
Barclays analyst John Aiken said in a research note that the lower than expected provisions underpin a “very strong beat” for the bank’s earnings, but noted that the wealth management business BMO also had a strong quarter and financial market activity was strong.
BMO’s wealth management business net income increased 23% from the same period a year ago, while capital markets net income increased 36%, according to the quarterly financial report.
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White said the company is adding mortgage specialists to its staff, while expanding the team of its online brokers amid unprecedented demand and record transaction volumes. But he also noted that the company was streamlining and digitizing branch office operations.
During the conference call, CFO Tayfun Tuzun also said that spending control remains a priority for the company, noting that some areas of the company have lower personnel costs, partially offset by costs related to the company. higher technology.
Despite the better-than-expected adjusted earnings announced on Tuesday, Cronin noted that the bank was keeping an eye on new variants of COVID-19.
“One potential adverse case includes … a slower rollout of a vaccine that tilts borrowers who are barely clinging to delinquency. Or, in the worst-case scenario, where the virus variants bring us back into a situation that looks more like last March, ”Cronin mentioned.
“This is not our base case. But the risk of these seemed to be higher quarter to quarter.”
Scotiabank earns $ 2.4 billion
Meanwhile, Scotiabank beat expectations by reporting nearly $ 2.40 billion in the first quarter, down from nearly $ 2.33 billion.
The bank says earnings were $ 1.86 per diluted share for the quarter ended Jan. 31, compared to adjusted earnings of $ 1.84 per diluted share a year earlier.
Revenue totaled $ 8.07 billion, compared to $ 8.14 billion.
Provisions for credit losses for the quarter were $ 764 million, up from $ 926 million a year ago.
Although many of Scotiabank’s Latin American markets were hit by the pandemic later than North America, it cited a “favorable macroeconomic outlook” as a factor in reducing bad debt provisions, particularly in addition to that. Wed.
The bank, which has seen a rise in bad debts in some foreign markets, notably Peru, has sufficient reserves to cover the
increase in bad loans in the second and third quarters, its executives said on a phone call.
On an adjusted basis, Scotiabank says it earned $ 1.88 per diluted share, up from $ 1.83 per diluted share in the same quarter last year.
Analysts on average expected adjusted earnings of $ 1.57 per share, according to financial data firm Refinitiv.