BMO shares fall as earnings disappoint

Bank of Montreal shares fell six per cent Tuesday after the bank reported earnings that disappointed markets.

Canada's fourth largest lender earned $669 million in its third quarter, ending July 31. That was $1.14 per share of cash earnings, about seven cents short of average analyst estimates.

However, the profit was still 20 per cent higher than a year ago, when the bank reported earnings of $557 million.

Its shares closed down $3.56 to $55.50 on the Toronto Stock Exchange.

Revenue was down slightly to $2.91 billion from $2.98 billion.

The bank's BMO Capital Markets division — which handles investor trading, company share and bond offerings and finances mergers and acquisitions —  was hit particularly hard, with a 58 per cent decrease in profits to $130 million.

The division had also been riding high on several quarters of strong activity, but that has pulled back in recent months.

The S&P/TSX financials index fell three per cent to 163.04 points as traders worried that other Canadian banks will report similar hits later in the week.

Bank of Montreal led off the bank earnings season. CIBC will report on Wednesday, while National Bank and Royal Bank will follow on Thursday.

Reduces credit losses

Bank of Montreal also reduced its provisions for credit losses during the quarter as the economy improved from last year.

The provisions were reduced by $203 million from a year ago to $214 million for the three months ended July 31.

Barclays Capital analyst John Aiken said the results were "well below" his forecast of $1.27 per share.

"While we expect that Bank of Montreal's valuation will likely be negatively impacted by the earnings miss; its shares could recover some lost ground after an initial selloff," he said in a note.

"This is because trading is inherently volatile and, while BMO disappointed, a poor quarter was not unexpected.

Further, a significant outperformance on provisions for credit losses will likely generate a lift to consensus earnings estimates."