Wednesday, February 27, 2013

BMO Q1 2013 Earnings

  
Scotiabank, Global Banking and Markets, 27 February 2013

Event

BMO cash operating EPS increased 7% YoY to $1.52, beating street expectations. The $1.52 includes $0.06 per share related to recoveries on M&I purchased credit impaired loans versus $0.13 per share in the previous quarter and $0.13 per share last year. BMO also announced a 3% annual dividend increase to $2.96 per share from $2.88 per share.

Implications

• Earnings growth was driven by strong U.S. P&C results as credit losses declined; continued strong Wholesale banking earnings driven by solid trading revenue and very strong underwriting and advisory fees, and solid performance in PCG. Lower PCLs in P&C Canada also contributed to earnings growth.

• Wholesale Earnings remained strong, declining a modest 2% from the strong Q4/12, and increasing 38% YOY. P&C Canada earnings increased 4% as solid volume growth of 9% YOY and lower PCLs, helped offset margin compression, with NIM declining by 27 bps YOY and 3 bps QOQ.

• Operating ROE: 14.8%, RRWA: 1.86%, CET1: 9.4%.

Recommendation

• Our 2013E and 2014E EPS are unchanged at $6.20 and $6.60 per share, respectively. We are increasing our one-year target price slightly to $70 from $66 supported by higher dividend. Maintain Sector Underperform based on high relative P/E multiple given its low relative profitability.
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