06 December 2011

BMO Q4 2011 Earnings

The Financial Times, 6 December 2011

Canada’s five biggest banks have reaped the benefits of a vast, stable retail network by reporting sizeable advances in – and, in some cases, record – earnings in their latest fiscal year.

Bank of Montreal, the last of the five to publish results, reported net income on Tuesday of C$3.27bn ($3.23bn) for the year to October 31, up 16 per cent from 2010.

In a remark that would apply to few of BMO’s US or European rivals, Bill Downe, chief executive, described 2011 as “a terrific year”, including record earnings from personal and commercial banking.

The Canadian banks have a low direct exposure to the eurozone. Europe makes up 6 per cent of total lending assets at Royal Bank of Canada, the most exposed. RBC officials note that much of its lending is to blue-chip European companies.

Even so, Mr Downe told the Financial Times that the eurozone crisis “has implications for overall economic growth, and in that sense it’s important”. The banks – like the Canadian economy – are also heavily dependent on the health of US financial markets.

Several sounded a cautious note for the future. Ed Clark, Toronto-Dominion’s chief executive, cited low interest rates, sluggish economic growth and an uncertain regulatory environment.

All five banks – RBC, TD, Bank of Nova Scotia, BMO and Canadian Imperial Bank of Commerce – reported double-digit increases in fourth-quarter earnings. Returns on equity ranged from 14.3 per cent at TD and BMO to CIBC’s 20.6 per cent.

TD and Scotiabank reported record annual earnings of C$5.89bn and C$5.27bn respectively. Peter Routledge, analyst at National Bank Financial, expects TD to announce its third dividend increase in a year next quarter. The bank is one of a handful worldwide that still carries a Moody’s triple A credit rating.

“We’ve benefited from a very strong economy and good employment growth at home”, Mr Downe said. “We’re headquartered in a very stable country.”

He added that “the fact that we’re well-capitalised and have a strong balance sheet has drawn deposits to the bank”. BMO’s Chicago-based subsidiary, BMO Harris Bank, boosted its deposit market share to 11.6 per cent from 9.5 per cent, overtaking Bank of America as the region’s second-biggest deposit-taker.

RBC has sought to woo European wealth-management customers with an advert that features a leafy maple tree against a desolate, wintry backdrop. The caption reads: “Standing tall for our clients in an uncertain world.”

George Lewis, head of RBC’s wealth management division, said that “given the current environment, we chose to initially focus our campaign in Europe, where we believe the stability of RBC represents great appeal for clients”.

One analyst expressed concern about rising non-interest expenses as a common thread among the results. Fourth-quarter expenses at Scotiabank, normally among the most parsimonious, jumped by 15.4 per cent.