December 6, 2016 / 1:42 PM / 2 years ago

BMO comfortable with capital after earnings beat view

TORONTO (Reuters) - Bank of Montreal’s Chief Financial Officer said he was comfortable with the bank’s capital strength, despite it being weaker than rivals’, after the lender reported better-than-expected earnings.

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

Canada’s fourth-biggest lender said earnings per share increased by 11 percent to C$2.10 in the fourth quarter to Oct. 31, benefiting from a strong performance at its capital markets and U.S. personal and commercial businesses.

Analysts on average had expected earnings of C$1.85, according to Thomson Reuters I/B/E/S.

Shares in Bank of Montreal were up 2.5 percent in afternoon trading.

BMO said its core tier 1 ratio, a key measure of its financial strength, rose by 10 basis points from three months earlier to 10.1 percent at the end of October.

Last month, the bank said it had overstated its capital strength in the first three quarters of 2016 and revised down its core tier 1 capital ratio to 10 percent from the 10.5 percent initially reported.

The revision meant its core capital is currently the lowest of Canada’s biggest five banks, although that could change when rivals complete acquisitions.

In an interview, BMO’s Chief Financial Officer Tom Flynn said he was “very comfortable” with where the bank’s core capital ratio currently stands.

“Our ratio is in a pack with the majority of the banks and then there are a couple of banks that are higher so we’re comfortable with the ratio,” he said.

Some analysts had warned the capital revision could stall the bank’s expansion plans but Flynn said acquisitions were still possible.

“We continue to monitor opportunities and evaluate things as they come up that potentially could make sense for us,” he said.

BMO said net income, excluding one-off items, rose to C$1.4 billion, up 10 percent on a year ago.

Net income at the bank’s capital markets business rose by 64 percent to C$396 million, excluding one-off items, benefiting from increased revenue from its mergers and acquisitions advisory business and higher trading revenue.

Underlying net income at the bank’s U.S. personal and commercial business rose by 35 percent to C$299 million, boosted by the contribution of its newly acquired BMO Transportation Finance business.

Funds set aside to cover loans that have turned bad totaled C$174 million, less than analysts forecast.

BMO had seen an increase in delinquent loans to oil and gas companies due to declining energy prices but has benefited from a partial recovery in the price of oil.

Reporting by Matt Scuffham; Editing by Greg Mahlich and Nick Zieminski

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