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* Bank to cut around 1,850 jobs from 46,000 workforce
* Bank says responding to less transactions in branches
* Some branches set to close over medium term
* Bad loans to oil and gas sector rise to C$410 million (Adds comments from interview with CFO)
By Matt Scuffham and Marcy Nicholson
TORONTO/NEW YORK, May 25 (Reuters) - Bank of Montreal will shed around 4 percent of its 46,000 workforce as part of a drive to cut costs, staff were told in a memo on Wednesday after the lender reported a decline in quarterly profit.
Chief Executive Bill Downe said the move, which will see around 1,850 jobs go, was a response to changing customer behavior and the advent of new digital technologies.
Banks around the world are cutting branches and staff and investing in technology as more customers bank online rather than visit a branch.
"We have taken this step to position the bank for what lies ahead - and to account for the structural changes underway in the financial services industry," Downe said in the memo seen by Reuters.
Speaking to Reuters, Chief Financial Officer Tom Flynn said more jobs would leave from the retail side than its investment banking arm, with some branches set to close in the medium term.
Flynn said the number of transactions done by customers online and via mobile banking apps had risen by 5 million in the past two years while branch transactions declined.
"We're adjusting how we do business and moving with our customers," he said.
Canada's fourth biggest bank earlier Wednesday announced a C$132 million ($101 million) restructuring charge, helping push its second-quarter net income down 3 percent to C$973 million, or C$1.45 per share.
Excluding that charge, its earnings were C$1.73 a share. Analysts on average had expected C$1.75 a share, according to Thomson Reuters I/B/E/S.
BMO said bad loans to oil and gas companies more than doubled in the latest quarter and set aside more funds to cover losses, setting the scene for expected increases in provisions by other Canadian lenders.
The bank said gross impaired loans to the oil and gas sector rose to C$410 million from C$162 million during the second quarter ended on April 30.
Provisions for credit losses increased to C$201 million from C$161 million. Flynn warned loan loss provisions were likely to rise further over the course of the year.
Canada's other major banks are also expected to set aside more funds to cover bad loans this results season.
Energy sector loans accounted for 2 percent of BMO's total credit portfolio, and the oil-producing province of Alberta makes up about 6 percent of its loan book.
BMO shares were up 1.3 percent at C$84.27 at 1600ET. ($1 = 1.3081 Canadian dollars) (Editing by W Simon, Bernard Orr)