Bank of Montreal and Bank of Nova Scotia reported profits that exceeded expectations and lower-than-anticipated loan loss provisions.Reuters
Two of the country’s biggest banks delivered better-than-expected financial performance as their leaders sounded a note of cautious optimism about the economy’s prospects.
On Tuesday, Bank of Montreal BMO-T and Bank of Nova Scotia BNS-T kicked off reporting of results for the quarter ended July 31 with profits that exceeded expectations and lower-than-anticipated loan loss provisions. Executives at the two lenders struck a more upbeat tone than in previous quarters, when the prospect of trade war translated into increased reserves for bad loans.
Darryl White, chief executive officer at BMO, said the business uncertainty created by U.S. President Donald Trump’s tariff policies has receded in recent months. He said ahead of the potential renegotiation of the trade pact between Canada, the United States and Mexico next year that “the economy is proceeding as expected, neither robust nor recessionary.”
At Scotiabank, chief risk officer Phil Thomas said: “If I look at where we are now versus where we were last quarter: some big improvements, particularly on the retail side.”
“I’m encouraged by the trends, however I don’t think the worst has necessarily passed us and I think we still need to be very thoughtful about the macroeconomic dynamic,” Mr. Thomas said.
BMO’s and Scotiabank’s share prices jumped after the lenders released results, with BMO stock closing up 4.7 per cent and Scotiabank gaining 6.9 per cent on Tuesday. So far this year, domestic bank stocks have made a major contribution to the 13.9-per-cent rise in the S&P/TSX benchmark index.
BMO reported a $2.22-billion profit in the three months ended July 31, up 25 per cent from $1.87-billion in the same period a year ago. The bank’s earnings per share rose 26 per cent to $3.14, compared with $2.48.
The bank’s adjusted net income, the measure of profit investors focus on, was $2.4-billion or $3.23 per share. That compared with $1.98-billion or $2.64 a year earlier. BMO’s results beat analysts’ consensus estimate of a $2.97 per share profit.
BMO increased the size of its stock buyback program to 30 million shares, from 20 million, subject to approval by regulators and the Toronto Stock Exchange. The increase in BMO’s normal course issuer bid is one of the ways the bank can return more of its excess capital to shareholders.
Meanwhile, Scotiabank posted a $2.53-billion quarterly profit or $1.84 per share, compared with $1.91-billion or $1.41 in the same quarter last year. The bank’s adjusted earnings per share were $1.88. Analysts forecast adjusted earnings of $1.73 a share.
“BNS reported one of the strongest quarters we’ve seen from the bank in a long time,” said analyst Gabriel Dechaine at National Bank Financial in a report. “Despite the better-than-expected credit performance, the bank maintained cautious/conservative guidance,” he wrote.
Scotiabank’s provision for credit losses was $1.04-billion, a decrease of just $11-million from the same quarter a year ago. Mr. Thomas said performance improved in the bank’s consumer credit portfolio, including auto loans. He said: “We’re starting to see the pig moving through the python.”
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Consumer credit card spending data has shown an increase in discretionary spending, Mr. Thomas said. However, domestic confidence is still under stress, especially in younger clients.
“There’s some green shoots coming but we’re still really cautiously optimistic about the outlook,” Mr. Thomas said.
In June, BMO announced plans to expand its wealth management platform by buying employee-owned Burgundy Asset Management Ltd. for $625-million. The Toronto-based firm manages $27-billion for wealthy clients and institutions. On Tuesday, Mr. White said: “”We continue to invest to drive sustainable growth across our businesses, including our recently announced acquisition of Burgundy.”
Mr. White has focused on improving BMO’s return on equity (ROE) after acquiring San Francisco-based Bank of the West in 2023 for US$16.3-billion. The lender’s adjusted ROE rose to 12 per cent in the most recent quarter, from 10.6 per cent in the same period a year ago.
“BMO posted a solid quarter,” said analyst Paul Holden at CIBC Capital Markets. “Our confidence that BMO is past peak provisions for credit losses increases, and progress against ROE expansion targets is good.”
Scotiabank also significantly increased its profitability, with adjusted ROE rising to 12.4 per cent, compared with 11.3 per cent a year ago. In a press release, CEO Scott Thomson said: “We reported improving revenue growth which helped drive another quarter of positive operating leverage and pushed our return on equity meaningfully higher.”
Last August, Scotiabank built a toehold in the U.S. regional banking market by buying a 14.09-per-cent stake in KeyCorp. for $2.8-billion. In the most recent quarter, Scotiabank earned $68-million on its stake in the Cleveland-based lender. KeyCorp’s share price is up 13 per cent since Scotiabank’s purchase.