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DEC 6 - Bank of Montreal's (BMO.TO) quarterly profit rose 21 percent due to its acquisition of a big U.S. Midwest bank, but the result missed analysts' estimates, prompting investors to push the shares lower on Tuesday.
BMO is the first Canadian bank this quarter to miss consensus estimates, although the quarter has hardly been a stellar one for the sector due to a murky 2012 outlook and share prices that have followed the ups and downs of the European debt crisis.
Canada's fourth-largest bank earned a net C$897 million ($885 million), or C$1.34 a share, in its fiscal fourth quarter ended October 31. That compared with a year-before profit of C$739 million, or C$1.24.
Adjusted profit was C$1.27 a share, falling just short of analysts' estimates of $1.31, according to Thomson Reuters I/B/E/S.
"The capital markets were particularly soft, although that's coming after Q3, when they were particularly strong," said CIBC World Markets analyst Robert Sedran.
About one hour into trading, BMO's stock was down C$2.35, or 3.9 percent, at C$57.49 on the Toronto Stock Exchange.
Brad Smith, an analyst at Stonecap Securities, said the impact of the profit miss was exacerbated by the premium valuation BMO shares have been trading at versus their peers.
"We would expect to see meaningful price weakness," he said in a note.
Separately, the bank announced that David Galloway will retire as chairman and will be replaced by current director Robert Prichard, subject to shareholder approval at the bank's annual meeting next year.
The profit gain was helped by the contribution of Marshall & Ilsley, a Wisconsin-based bank that BMO bought for $4 billion in July.
The acquisition more than doubled BMO's U.S. branch network and helped boost profit at its U.S. personal and commercial bank unit more than three-fold to C$156 million during the quarter.
That overshadowed a 30 percent drop in profit at the bank's capital markets division, which earned C$149 million.
BMO said Canadian retail banking income climbed a slim 1.5 percent to C$424 million as loan growth was offset by narrower margins, as loans were renewed at lower interest rates.
Narrow margins have pressured earnings at all of Canadian banks this year, forcing them to expand their loan books to try to increase profits.
Analysts forecast a difficult year ahead as interest margins are expected to stay narrow, while the uncertainty surrounding the European debt crisis could threaten market-related income.
As such, BMO reduced its medium term annual EPS growth objective to a range of 8-10 percent from 12 percent.
The bank also left its quarterly dividend steady at 70 Canadian cents a share, making it the only big Canadian bank not to have resumed dividend hikes following the end of the 2008-09 financial crisis.
Some analysts had said the bank would likely raise the payout just to avoid being the only laggard, but Sedran said he had not expected an increase since BMO's dividend payout ratio - the percentage of profits paid out as dividends - is at the high end of the bank's range.
BMO last raised the payout in 2007.
Reporting by Cam French; Editing by Frank McGurty and Editing by Peter Galloway