Scotia Capital, 29 February 2012
• BMO cash operating EPS increased 8% YOY to $1.42, above our expectations of $1.40 and IBES at $1.37 due to loan loss recoveries related to the M&I acquisition, partially offset by stock based compensation and lower insurance earnings due to impact of decline in long term interest rates. Wholesale earnings had a partial rebound with retail earnings softening.
Implications
• P&C Canada earnings declined 6% YOY or 3% on a comparative basis, excluding a security gain. Weak retail earnings were due to declines in NIM and lower volume growth. BMO Capital Markets earnings increased 38% sequentially to $198 million driven by a 73% rebound in trading revenue to $284 million. P&C U.S. earnings declined 11% sequentially due to the negative impact of lower net interest income, lower interchange fees and higher expected loss provisions.
• Operating ROE: 15.0%, RRWA: 1.73%, CET1: 7.2%
Recommendation
• We are trimming our 2012E EPS to $5.75 from $5.80, with 2013E EPS unchanged at $6.30. Maintain 3-Sector Underperform based on low relative profitability and weak core earnings.
;
• BMO cash operating EPS increased 8% YOY to $1.42, above our expectations of $1.40 and IBES at $1.37 due to loan loss recoveries related to the M&I acquisition, partially offset by stock based compensation and lower insurance earnings due to impact of decline in long term interest rates. Wholesale earnings had a partial rebound with retail earnings softening.
Implications
• P&C Canada earnings declined 6% YOY or 3% on a comparative basis, excluding a security gain. Weak retail earnings were due to declines in NIM and lower volume growth. BMO Capital Markets earnings increased 38% sequentially to $198 million driven by a 73% rebound in trading revenue to $284 million. P&C U.S. earnings declined 11% sequentially due to the negative impact of lower net interest income, lower interchange fees and higher expected loss provisions.
• Operating ROE: 15.0%, RRWA: 1.73%, CET1: 7.2%
Recommendation
• We are trimming our 2012E EPS to $5.75 from $5.80, with 2013E EPS unchanged at $6.30. Maintain 3-Sector Underperform based on low relative profitability and weak core earnings.
