Bank of Montreal profit up; U.S. unit offsets bad energy loans

Tue Feb 23, 2016 10:08am EST
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By John Tilak

TORONTO (Reuters) - Bank of Montreal (BMO.TO: Quote), Canada's fourth-largest lender, posted a higher quarterly profit that topped market expectations on Tuesday, lifted by growth in its U.S. retail banking business.

However, bad loans in the energy sector shot up in the first quarter, reflecting the impact of a collapse in the oil price and signaling that the Canadian banks were not immune to the oil-related slowdown in Western Canada.

Gross impaired loans in the oil and gas sector jumped C$162 million ($118.15 million), from none recorded in the year-earlier period and C$102 million in the fourth quarter.

Provisions for that sector's credit losses climbed to C$22 million, from virtually zero a year earlier.

Energy sector loans account for 2 percent of BMO's total loan portfolio, and the oil-producing province of Alberta makes up about 6 percent of its loan book."There’s no cause for panic at this point over the bank’s energy exposure and the increase in bad loans, said David Cockfield, managing director and portfolio manager at Northland Wealth Management, which owns shares of BMO.

“It’s worth watching, but getting too excited about it? Not yet,” he said.

Cockfield said one area of concern in the numbers was the increase in non-interest expense, which was up 8.8 percent at C$3.27 billion.BMO shares climbed 2.2 percent to C$75.48 in early trading in Toronto.

The lender's earnings quality was somewhat weak and the company benefited from a favorable tax rate, Edward Jones analyst James Shanahan said.   Continued...

The logo for the Bank of Montreal is seen at its branch Toronto, March 5, 2013. REUTERS/Mark Blinch