Bank of Montreal warns of slowing economic growth after modest earnings beat

TORONTO (Reuters) - Bank of Montreal BMO.TO warned that economic growth would slow in its key markets of Canada and the United States next year after reporting fourth-quarter earnings which were modestly ahead of market forecasts.

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

Canadian banks have warned that global economic uncertainty and trade tensions could hurt their performance in 2019, citing the U.S.-China trade war and strains in the energy and automotive manufacturing sectors.

“We think GDP (gross domestic product) growth in both Canada and the U.S. will be 30 to 40 basis points lower next year,” BMO’s Chief Financial Officer Tom Flynn said in an interview.

Flynn added that trade discussions were “a concern at times” but said the bank was sticking to its target for earnings growth of between 7 percent and 10 percent next year.

Rival Toronto-Dominion Bank TD.TO said last week it could fail to meet its earnings targets in 2019 if economic conditions deteriorate, while CIBC said it expected its earnings to be at the lower end of its target range next year due to economic headwinds.

BMO reported a 19 percent rise in fourth quarter earnings to C$2.32 per share in the quarter ending Oct. 31, ahead of the average analyst forecast of C$2.29, according to IBES data from Refinitiv.

The bank reported net income, excluding one-off items, of C$1.53 billion ($1.16 billion) in the quarter, up 17 percent on the year before.

Eight Capital analyst Steve Theriault described the beat as “modest” and said the bank’s shares could underperform on Tuesday as they are currently trading at a premium to rivals.

Shares in BMO were down 3.4 percent in mid-afternoon trade.

The results capped a mixed earnings season for Canadian banks. Royal Bank of Canada RY.TO and TD beat analysts' expectations but Bank of Nova Scotia BNS.TO and Canadian Imperial Bank of Commerce CM.TO both missed forecasts.

Bank of Montreal reported an 8 percent rise to C$676 million in net income at its Canadian retail business, driven by sales growth and setting aside less funds to cover bad loans.

Net income at its U.S. retail business grew by 36 percent to C$383 million, reflecting sales growth and beneficial tax reforms.

The bank said last month that it expects its U.S. business to account for one-third of its overall earnings in five years time. In the latest quarter, the U.S. accounted for 28 percent of earnings compared with 24 percent a year ago.

($1 = 1.3163 Canadian dollars)

Reporting by Matt Scuffham; editing by Susan Thomas and Chizu Nomiyama