BMO earnings hit by decline in investment banking business

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(Bloomberg) — Bank of Montreal was another victim of the slowdown in financial markets last quarter, as a slump in equity and debt issuance reduced fees for investment banks.

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Capital markets revenue fell 20% to C$1.26 billion ($974 million) in the fiscal third quarter, the Toronto-based company said in a statement on Tuesday. . The overall profit missed analysts’ estimates.

Bank of Montreal, which derives a higher share of its revenue from financial markets than some Canadian banking peers, is being hit by falling stock markets which have reduced transactions such as initial public offerings and other asset sales. actions. Investment and corporate banking revenue fell 36% to C$451 million.

“On a segmented basis, capital markets mostly underperformed,” Royal Bank of Canada analyst Darko Mihelic wrote in a note to clients. “That said, BMO’s results appear consistent with the experience of its peers in financial markets.”

Net income fell 40% to C$1.37 billion, or C$1.95 per share. This figure included an after-tax loss of C$694 million generated by write-downs on interest rate swaps the bank entered into to manage the effect of rate changes between the announcement and the close of its $16.3 billion acquisition of Bank of the West. .

These markdowns contributed to negative trading revenue of C$566 million on a tax equivalent basis for the quarter. Adjusted trading revenue was C$358 million, down 31% from the prior year, impacted by lower interest rates and equities.

Excluding markdowns and certain other items, earnings were C$3.09 per share. Analysts estimated C$3.15.

Bank of Montreal shares slid 2.5% to C$124.55 at 2:50 p.m. in Toronto. Stocks have fallen 8.6% this year, compared to a 12% decline for the S&P/TSX Commercial Banks Index.

Chief Financial Officer Tayfun Tuzun said while it’s too early to call a bottom for capital markets activities, the bank is seeing “positive signs” over the past four to five weeks that could be the early stages of a improvement.

“Capital market participants are slowly working to move some of the backlog, and they seem to be gaining traction with investors,” Tuzun said in an interview. “Our business activity has seen signs of stability. There aren’t necessarily a thing or two to point out, but it’s just a bit firmer compared to early summer.

The meltdown in financial markets undermined some of the benefits of stronger results from the lender’s personal and commercial banking businesses in the United States and Canada. Revenue from the US unit rose 12% to $1.23 billion, helped by an increase in commercial loans. Canadian division revenue climbed 13% to C$2.53 billion, with gains across all loan categories.

Net interest margin for all of its personal and commercial banking operations widened to 3.04% from 2.93% in the second quarter. Bank of Montreal has made provisions for credit losses of C$136 million. Analysts estimated C$179.2 million.

“We delivered robust loan growth and spread expansion that generated record revenues in our North American personal and commercial businesses, mitigating the impact of challenging market conditions on our capital markets business,” said said general manager Darryl White in a statement.

(Updates with CFO comments in the ninth and tenth paragraphs.)

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