May 26, 2010 / 6:10 PM / 7 years ago

WRAPUP 2-BMO, Laurentian Bank profits surge in 2nd quarter

* BMO profit doubles, beats expectations

* BMO shares climb 2.6 pct

* Laurentian profit up 34 pct, meets expectations

* Laurentian shares down 0.6 pct (Recasts with share price, adds analyst comments, details)

By Andrea Hopkins

TORONTO, May 26 (Reuters) - Canadian banks kicked off their second-quarter earnings season on Wednesday with Bank of Montreal and Laurentian Bank reporting strong profit growth, sending financial sector shares mostly higher.

Bank of Montreal (BMO.TO), Canada’s fourth-largest lender, said its profit doubled in the three months ended April 30 as loan losses fell and capital markets revenue surged. Its results handily beat analysts’ forecasts.

They also raised expectations of better credit quality at all of Canada’s big banks, most of which report quarterly results this week, as the economic recovery helps banks recover some of the loans that went bad during the recession.

It was the fifth straight quarter of higher revenues and income for Toronto-based BMO, which has banking operations across Canada and in the U.S. Midwest. Its shares closed 2.6 percent higher at C$60.26 on the Toronto Stock Exchange.

Laurentian Bank of Canada (LB.TO), a regional bank that operates mainly in the province of Quebec, reported a 34 percent jump in profit as higher revenues offset rising loan losses.

While the profit growth was in line with expectations, shares in Montreal-based Laurentian ended 0.6 percent lower at C$42.81, bucking an overall 0.8 percent gain in the Toronto Stock Exchange’s financial index.

Edward Jones analyst Craig Fehr said BMO’s results suggest that Canadian banks will benefit from lower loan losses -- and even some credit recoveries -- after suffering from consumer and business loan defaults during the economic slump.

“As we look at Q2, with BMO kicking it off, the trend is definitely going to be on credit improvement, and we saw a decisive improvement from Bank of Montreal today,” Fehr said.

Still, he warned that the Canadian banks that have yet to report may not be able to live up to BMO’s example, having already exceeded expectations in the previous two quarters.

Canadian banks generally outperformed global rivals during the financial crisis, avoiding bailouts and bankruptcies and remaining mostly profitable throughout. Their success has been attributed to strong regulation as well as a conservative culture among executives.

“The banks are running against high hurdles. BMO was able to jump over it again this quarter but I do think expectations are getting quite high for the banks and it’s going to be difficult for them to exceed expectations like they have quarter after quarter,” Fehr said.

Barclays Capital analyst John Aiken said BMO’s results set a positive tone for the quarter, but he too noted that the bank has outperformed its “Big Six” Canadian rivals over the past two quarters.

“While it does look like the banks can exceed consensus based on BMO’s results, if the previous quarters are an indication, the remaining banks may not generate the same strength in their positive surprises,” Aiken said in a note.

PROFIT UP SHARPLY

BMO said it had net income of C$745 million ($702 million), or C$1.26 a share, for the quarter ended April 30. That was up from C$358 million, or 61 Canadian cents a share, a year earlier.

Cash earnings per share were C$1.28, well above the C$1.10 per share profit expected by analysts, according to Thomson Reuters I/B/E/S.

BMO’s Canadian operations once again powered earnings, with profit up 16 percent, while profit in the capital markets segment rose 38 percent.

Canadian banks bulked up on their wholesale banking operations, which include lucrative trading arms, during the global financial crisis when rivals were reeling.

BMO’s U.S. operations, which are concentrated in the Midwest through its Chicago-based Harris Bank subsidiary, were a weak spot. Net income fell 31 percent to US$45 million from the second quarter of 2009.

BMO has been stung by higher loan losses in the United States relative to its Canadian operations as U.S. consumer and business borrowers struggle with the slower U.S. recovery.

BMO said provisions for credit losses, or the amount of money the bank sets aside to cover bad loans, fell to C$249 million, down C$123 million from a year earlier.

Credit losses ate into bank profits in 2009 but BMO reported some loan loss recoveries or reversals in the quarter, which happen when a bank is able to claw back past-due loans it had previously considered a total loss.

The bank’s Tier 1 capital was 13.3 percent, at the high end of Canadian peers and well above most global rivals.

In April, Harris Bank completed the FDIC-assisted acquisition of Amcore Bank NA in Illinois and Wisconsin. While the deal was not expected to be material to BMO’s earnings, the bank has said it is eager to increase its geographic footprint across the U.S. Midwest.

Laurentian Bank earnings were slightly less robust than BMO’s as its loan losses grew.

The bank said net income rose to C$28.3 million, or C$1.06 a share, in the second quarter, ended April 30. That compares with C$21.2 million, or 76 Canadian cents a share, in the same quarter a year earlier.

Analysts, on average, had expected a profit of C$1.06 a share, according to Thomson Reuters I/B/E/S.

Canada’s other big banks are due to report this week and next. Canadian Imperial Bank of Commerce (CM.TO), Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO) and National Bank of Canada (NA.TO) report on Thursday. Bank of Nova Scotia (BNS.TO) caps the earnings season on June 1.

$1=$1.06 Canadian Reporting by Andrea Hopkins; editing by Rob Wilson

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