Bank of Montreal profit up 20 per cent, despite hit from severance costs

Posted on July 19, 2019 by Admin


Bank of Montreal profit up 20 per cent, despite hit from severance costs

Severance costs took a bite out of the Bank of Montreal’s second-quarter earnings, as the lender said it was trying to align its capital-markets business with current market conditions.BMO announced its financial results for the three months ended April 30 on Wednesday, reporting a profit of nearly $1.5 billion, up 20 per cent from the…

Severance costs took a bite out of the Bank of Montreal’s second-quarter earnings, as the lender said it was trying to align its capital-markets business with current market conditions.

BMO announced its financial results for the three months ended April 30 on Wednesday, reporting a profit of nearly $1.5 billion, up 20 per cent from the same quarter last year.

The bank’s adjusted earnings per share for its fiscal second quarter were $2.30, a five-per-cent increase over last year but two cents below analysts’ expectations.

Those earnings were weighed down by job cuts, as BMO’s quarterly results included a $120-million pre-tax severance expense for its investment-banking unit.

Darryl White, the bank’s chief executive officer, said BMO was taking “disciplined actions” to execute on their strategy and position themselves for ongoing growth.

“For example, we’ve made organizational changes within our capital markets group to align resources with the revenue environment,” White said during a conference call Wednesday morning, adding that the severance cost had reduced adjusted earnings by 14 cents per share.

The number of full-time equivalent employees for the second quarter for BMO Capital Markets was 2,764, up slightly quarter-over-quarter and an increase of more than 200 jobs over the same period last year, according to the bank’s supplementary financial information. Earlier media reports, however, indicated that BMO had cut about 100 capital-markets jobs this month.

BMO’s chief financial officer, Tom Flynn, did not dispute what has been reported but said the severance costs were “not really significant in the overall context” of the bank’s capital-markets business.

“And we do expect some meaningful expense savings to come from (the job cuts) over the second half of this year and into next year,” Flynn said in a phone interview with the Post.

Dan Barclay, head of BMO Capital Markets, said during the conference call there had been no change in strategy and no closures of any businesses throughout the process. The efforts, Barclay said, are expected to translate into $40 million in savings this year and $80 million for 2020.

“The primary rationale was that we wanted to align our resources with the current market environment,” he said. “As you know, we’ve made a strong commitment to deliver on the operating leverage, and this is part of that program for us to deliver on that.”

BMO’s personal and commercial business in the United States was the standout performer for the bank’s second quarter, as profit from the unit rose 17 per cent over last year to $406 million. Net income from the bank’s Canadian P&C increased five per cent, to $615 million.

The bank also noted there were pre-tax integration costs of $8 million for its first two fiscal quarters related to its acquisition of New York-based fixed income broker-dealer KGS-Alpha Capital Markets, which was completed last September.

Flynn said the bank “felt good” about the quarter and was happy its earnings for the first half of its fiscal year were up seven per cent, in line with its mid-term target.

“We feel good about the traction that we’ve got in our business,” he added.

The bank also announced it would hike its quarterly dividend by three cents, to $1.03 per share.

“Headline results missed estimates though included $0.14 per share of non-recurring severance in the Capital Markets business, but also a surge in trading revenues,” wrote CIBC Capital Markets analyst Robert Sedran in a note on BMO Wednesday morning. “We are inclined to more of a ‘notionally in line to modestly ahead’ view, especially given underlying trends in other key operating segments.”

Last year, BMO had reported a pre-tax charge for the second quarter of $260 million, which was mostly tied to severance as well.

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