BMO profit dips to just over $1 billion

Bank of Montreal reports it had a lower first-quarter profit than last year, although its main Canadian banking arm and other major parts of its business still showed growth.

The bank had $1 billion of net income in the first quarter, before adjustments, down $61 million or six per cent from a year earlier.

Its adjusted net income was $1.041 billion, down $42 million or four per cent

The adjusted profit amounted to $1.53 per share, which was 10 cents below analyst estimates of $1.63 per share.

BMO said the reduced adjusted net income was primarily due to the impact of long-term interest rates on its insurance business.

Barclays banking analyst John Aiken said the bank's underlying performance isn't as bad as the profit dip suggests, but acknowledged it's a bad start for the closely watched earnings season for the big banks.

"This will not only likely weigh on its valuation today but could also pull down the shares of the group until the rest begin reporting," he said in a note to clients.

Headwinds for the banks

All of the big Canadian lenders are facing headwinds, including tight lending margins due to rock-bottom interest rates and a growing reluctance by stretched Canadian consumers to take on more debt.

Some analysts had predicted that investment banking business from the oilpatch would dry up during the quarter due to the recent plunge in the price of oil.

Although BMO's capital markets division — which includes investment banking — saw its revenues drop 20 per cent from a year ago to $221 million, analysts said the segment performed better than expected.

"Everyone's talking about oil and how that's going to impact the banks, but the full impact hasn't really hit yet and I think it's going to take a couple of quarters before it does," said Morningstar analyst Dan Werner.

BMO's chief executive says he expects the bank's revenue to improve during the second half of the year.

"The current operating environment poses both challenges and opportunities," Bill Downe told investors during a conference call Tuesday. "In this environment, we're keeping a close check on expense growth."