February 28, 2017 / 12:01 PM / 7 months ago

BMO first-quarter earnings smash estimates, Scotiabank in line

A Bank of Montreal (BMO) sign is seen outside of a branch in Ottawa, Ontario, Canada, August 23, 2016. REUTERS/Chris Wattie

TORONTO (Reuters) - Bank of Montreal (BMO.TO), Canada’s fourth biggest lender, reported first-quarter results on Tuesday that smashed market expectations, but rival Bank of Nova Scotia (BNS.TO) disappointed analysts with numbers that were broadly in line with estimates.

BMO shares rose 2.2 percent, on track for their strongest daily gain in nearly three months, after the bank reported net income of C$1.5 billion ($1.1 billion) in the quarter ended Jan. 31. That was up from C$1.1 billion the year before.

Earnings per share, excluding one-time items, came in at C$2.28 per share, beating the average analyst estimate of C$1.88, according to Thomson Reuters I/B/E/S data.

At Scotiabank, Canada’s third largest, net income was C$2 billion ($1.5 billion) in the first quarter to Jan. 31, compared with C$1.8 billion the year before. Earnings per share rose to C$1.58 from C$1.44 the year before.

The average estimate was C$1.57 per share, according to Thomson Reuters I/B/E/S data. Its stock fell 2.2 percent.

BMO said it plans to buy back 15 million of common shares, the equivalent of 2.3 percent of its publicly traded stock, due to its stronger capital position.

“We put the buyback program back into place recognizing that the (core tier 1) ratio is in a good place, and we think it’s a good part of our capital management strategy,” BMO Chief Financial Officer Tom Flynn said in an interview.

The bank said its core tier 1 capital ratio, a key measure of its financial strength, increased by 100 basis points to 11.1 percent during the quarter, marking a recovery after the bank revealed last November it had mistakenly overstated the ratio in the first three quarters of 2016.

BMO said then its core tier 1 ratio was 10.0 percent at the end of last August, not the 10.5 percent initially reported, the weakest of any major Canadian bank.

Analysts said the bank’s improved capital position could help restore the confidence of some investors who were spooked by last year’s error.

“We believe that the repairs done to its capital ratio will remove a significant overhang,” said Barclays analyst John Aiken.

In the first quarter, BMO benefited from particularly strong performances from its Canadian retail, wealth management and capital markets businesses.

FOR SCOTIABANK, ‘MILDLY NEGATIVE’

Commenting on Scotiabank’s results, Barclays’ Aiken said earnings were boosted by a gain of around C$40 million from the sale of real estate in Canada and an undisclosed gain on an investment in Colombia.

“Therefore, the view of earnings is either C$1.55 or a low quality C$1.58 and will likely be viewed disappointing against consensus (and our) forecast of C$1.57,” he said.

RBC Capital Markets analyst Darko Mihelic viewed the results as “mildly negative.”

“Even assuming that the market interprets Scotiabank’s earnings as C$1.58 per shares, this would be close to in line with consensus, whereas other banks beat consensus estimates handily,” he said.

Scotiabank, which has the biggest foreign presence of any Canadian bank, is focusing its international strategy on the Pacific Alliance, a Latin American trade bloc comprising Mexico, Peru, Chile and Colombia.

Chief Financial Officer Sean McGuckin played down the prospect that Mexico’s economy could weaken if U.S. President Donald Trump renegotiates a trade agreement between the United States, Mexico and Canada.

“If it goes down the road where they have slightly less trade to the U.S., they’re very well positioned to continue to be an exporter to many other countries,” he told reporters. “They’re a really strong force in manufacturing.”

Editing by Lisa Von Ahn and Jeffrey Benkoe

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