Friday, February 02, 2007

BMO to Cut 1,000 Jobs

Financial Post, Jonathan Ratner, 2 February 2007

Bank of Montreal's decision to cut 1,000 jobs, which will result in a first-quarter restructuring charge of $135-million, signals an apparent shift in both spending and resources toward boosting sales for its products, as well as making service improvements in personnel and at bank branches.

The staff reductions are a step in the right direction toward reducing costs, according to UBS analyst Jason Bilodeau.

The lower headcount could trim more than 1% off BMO's operating expenses and may be worth 5 to 10 cents per share on an annual basis, he said in a research note.

However, the move needs to be the start of a stronger effort to better manage costs for Mr. Bilodeau, who has maintained his "neutral" rating and $72 price target on BMO shares.

While costs are important to the bottom line, improving the bank's market share may pose a greater challenge and could take several quarters or more to see improvements, he said, adding that revenue gains will likely require more capital investment and spending in order to maintain the quality of customer support.

Having anticipated the restructuring charge following BMO's fourth-quarter results, Blackmont Capital analyst Brad Smith is not changing his earnings per share estimates or target price.

He has a $72 price target and "hold" rating on BMO shares.
Scotia Capital, 1 February 2007


• BMO announced a restructuring charge of $135 million, or $88 million after-tax, to be recorded in Q1/07. Approximately 1,000 jobs will be cut in an attempt to rejuvenate earnings and achieve financial targets in 2007.

• BMO stated that the cost savings will be invested in front-line sales and service in order to improve its retail operations which have been a drag on earnings in recent quarters.

What It Means

• The restructuring charge of $88 million after-tax amounts to $0.18 per share. Our operating earnings estimate for Q1/07 is $1.28 per share. Therefore, reported earnings for the first quarter are estimated to be $1.10 per share.

• Our 2007 and 2008 operating earnings estimates remain unchanged at $5.30 per share and $5.60 per share, respectively.

• Maintain 3-Sector Underperform rating on shares of BMO.
Bloomberg, 1 February 2007

Bank of Montreal was raised to ``sector perform'' from ``underperform'' by analyst Robert Wessel at National Bank Financial. The price target is C$76.00 per share.
The Globe and Mail, Andrew Willis, 31 January 2007

Bank of Montreal will cut 1,000 back office employees and take a $135-million restructuring charge as incoming chief executive officer Bill Downe pushes to make the bank more efficient while boosting customer service.

Taking actions similar to those of new CEOs when they arrived at CIBC, Toronto-Dominion Bank and Royal Bank of Canada, BMO announced it will chop 3 per cent of its 35,000-strong work force through cuts “across all support functions.” Most of the layoffs will occur over the next nine months.

“BMO clearly has areas where it can trim, and this is a lever they had to pull in order to make their financial targets,” said analyst Jason Bilodeau at UBS Securities, who added that he remains concerned with the bank's slow revenue growth. “We like the move to explicitly address costs, but it needs to be the start of a more rigorous cost-management culture,” he said.

The bank expects to take $117-million in severance costs and $18-million in other writedowns, all of which will come out of profits for the quarter ending Jan. 31, which the bank will announce at its annual meeting on March 1.

BMO's current CEO, Anthony Comper, will step down at next month's meeting in Toronto. On Wednesday, Mr. Comper said in a press release: “BMO's biggest competitive advantage is our people, so it is always tough to take decisions that result in job eliminations.”

BMO's stock market performance has lagged rivals in the past year, as revenue stalled and costs rose. In contrast, CIBC stock soared in part because of newly-named CEO Gerry McCaughey's took layers of management out of the organization, trimming 950 jobs and cutting expenses by more than $250-million a year.

RBC, another stock market leader, took a $192-million charge in 2004 when CEO Gordon Nixon reworked the way the bank was run and shed 1,600 head office jobs.

The BMO cuts are part of Mr. Downe's push to improve performance while enhancing front-line service, in branches and online. BMO has lost retail clients to rivals such as RBC and TD in areas such as mortgage financing and savings products. On Wednesday, the firm said that despite the cuts, it will still be hiring. In a typical year, the bank brings on 3,000 new employees.

Mr. Downe, currently chief operating officer, spent most of his career in the corporate lending and wealth management arms of the bank and spent much of the last several months in the field, talking to BMO branch managers and front-line workers. “These changes will help our employees to deliver improved service to our customers and will provide us with a competitive and sustainable cost base,” he said in the release.

In a release on the restructuring for investors and its employees, BMO said “we have looked at outsourcing as a part of this exercise, but no formal decisions have been taken.”

Analysts also said the cuts show that in the future, the Canadian banks face increasing challenges as they try to sustain double-digit profit growth. BMO's earnings grew 11 per cent last year, to a record $2.7-billion. All of the banks have enjoyed a favourable credit environment, with minimal loan losses. The slowing U.S. housing market is one of many signs that loan losses may start to creep up this year.
Bloomberg, Doug Alexander, 31 January 2007

Bank of Montreal, Canada's fourth-largest bank, plans to cut about 1,000 jobs, or almost 3 percent of its workforce, to reduce costs as profit growth slows.

The bank will post a one-time cost of C$88 million ($74.8 million) in the fiscal first quarter to cover the job cuts, the Toronto-based lender said today in a statement. Bank of Montreal reports earnings on March 1.

The bank said in November it planned to pare costs as demand slows for consumer loans. The company forecast earnings will grow between 5 percent and 10 percent this year, down from 12 percent in fiscal 2006.

``We owe it to our customers, our employees and our shareholders to have lean, efficient support functions, simplified processes, fewer layers and to eliminate duplication across our enterprise,'' Chief Executive Officer Anthony Comper said today in the statement. Comper, 61, is stepping down as CEO in March.

The job cuts would be the biggest by a Canadian lender since Royal Bank of Canada, the country's biggest bank, eliminated 1,660 jobs in 2004. A year later, Canadian Imperial Bank of Commerce, the No. 5 bank, cut 950 jobs.

Bank of Montreal will cut head office positions and fire support staff who don't deal directly with customers in cities including Toronto, Montreal and Chicago, spokesman Ralph Marranca said in an interview. Most of the cuts will happen by November.

Bank of Montreal said Nov. 28 in its earnings statement that it expected ``workforce reductions.'' The bank had 34,942 employees as of Oct. 31, up 1.8 percent from the previous year, and added 700 people in Canada alone in fiscal 2006.

The bank plans to reduce expenses as a percentage of revenue this year after missing its target in 2006. Non-interest expenses rose to C$6.35 billion in 2006, from C$6.33 billion a year earlier. The bank spent more money on branches and to shift employees into jobs serving customers.

The bank's so-called ``efficiency ratio'', or expenses to revenue, was 62.4 percent last year. The goal for 2007 is to reduce that to between 60.9 percent and 61.4 percent.