BMO grows fourth-quarter profit 11 per cent, wraps solid year for banks

By Alexandra Posadzki, The Canadian Press

TORONTO – Bank of Montreal (TSX:BMO) reported Tuesday that its fourth-quarter profit grew 11 per cent to $1.35 billion, wrapping up a year that has seen Canada’s biggest banks deliver solid results in spite of ongoing economic headwinds.

The bank’s profit for the quarter ended Oct. 31 amounted to $2.02 per share, up from $1.21 billion or $1.83 per share a year ago.

BMO, which was the last of the five big banks to report its quarterly results, had $5.28 billion in quarterly revenue, compared with $4.98 billion during the fourth quarter of last year.

Rock-bottom interest rates, a slowdown in consumer borrowing and the plummet in the price of crude were all expected to dampen the Canadian banking sector’s profitability this quarter.

But the five biggest lenders — including Royal Bank (TSX:RY), TD Bank (TSX:TD), Scotiabank (TSX:BNS) and CIBC (TSX:CM) — still managed to rake in $9.13 billion in fourth-quarter profits.

That’s up more than 10 per cent from the $8.27 billion they earned during the fourth quarter of last year.

Their combined quarterly revenue was $33.72 billion, up 10 per cent from $30.66 billion a year ago.

On an annual basis, the five big banks had a combined $35.69 billion in net income, up seven per cent from $33.26 billion in fiscal 2016.

Revenue for all five big banks for the full year was $135.19 billion, compared with $124.04 billion last year.

Gareth Watson, director of the Investment Management Group at Richardson GMP, says the banks benefited from the fact that the domestic economy was not as gloomy as many had initially predicted.

However, there are likely to be rocky roads ahead for the Canadian banking sector, Watson added.

“There are still big elephants in the room out there,” he said. “There are still headwinds to come — I just don’t think they’re in the immediate future.”

One such concern is the potential impact of future interest rate hikes on heavily indebted consumers, which, in a worst-case scenario, could spur a correction in housing prices, Watson said.

“I don’t think that that’s a concern for the markets until 2018, because I don’t see interest rates going higher by the Bank of Canada until then,” he said.

The sector’s vulnerability to the mortgage market has been a hot topic during the fourth-quarter conference calls, with some analysts raising concerns about CIBC’s relatively higher exposure.

BMO’s CEO Bill Downe said he’s confident about the North American economy, which is projected to grow at a moderate, but slightly faster, pace over the next 12 months.

“We are operating in an ever changing environment,” Downe said during a conference call to discuss the bank’s results.

“GDP growth is expected to improve to just under 2 per cent in Canada and over 2 per cent in the U.S. on higher oil prices from our U.S. consumer demand and fiscal expansion in both countries, and I do think this is a conservative estimate.”

BMO also announced on Tuesday that it’s increasing its quarterly payment to shareholders by two cents to 88 cents per share.

The lender had $5.28 billion in quarterly revenue, compared with $4.98 billion during the fourth quarter of last year.

For its full financial year, BMO earned $4.63 billion or $6.92 per share, up from $4.41 billion of $6.57 per share last year.

Revenue totalled $21.09 billion compared with $19.39 billion in the previous year.

Follow @alexposadzki on Twitter.

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