Bank of Montreal Faces Earnings Pressure

The Bank of Montreal (BMO) has announced that it will continue to set aside funds for loans at risk of default, following its sixth consecutive quarter of lower-than-expected profits. The bank’s shares dropped 6% in Toronto, prompting a second downgrade in a month due to a worsening credit outlook.

Jefferies analyst John Aiken downgraded BMO’s stock to “hold” from “buy,” citing the bank’s exposure to deteriorating credit conditions, particularly in its commercial segment. BMO’s third-quarter loan loss provisions exceeded analyst forecasts, largely due to impaired loans from two customers, one in the United States and another in its Capital Markets division.

BMO CEO Darryl White attributed the impairments to prolonged high interest rates, economic uncertainty, and shifting consumer preferences. He noted that 15 accounts were responsible for about half of the impaired provisions in the bank’s wholesale portfolio.

Chief Risk Officer Piyush Agrawal described the increase in retail sector loss provisions as “systemic” but emphasised that the wholesale sector’s issues were not confined to any specific industry. Despite these challenges, the bank expects a recovery in 2025 as interest rates stabilise and unemployment levels off, easing pressure on both consumers and businesses.

BMO’s provision for credit losses in the third quarter rose to C$906 million ($672.8 million), significantly higher than the C$492 million recorded a year earlier and above analysts’ expectations of C$734 million. The bank’s earnings per share came in at C$2.64, below the anticipated C$2.76.

In contrast, the Bank of Nova Scotia (Scotiabank) surpassed profit estimates, driven by strong growth in its domestic and international operations. Scotiabank’s shares rose 2.5%, bolstered by its focus on expansion in underbanked regions of South America and the Pacific Alliance trade bloc.

While BMO and other Canadian banks have sought growth opportunities in the U.S. market, they have encountered challenges in the competitive environment, requiring increased spending to retain deposits and stimulate loan growth. BMO’s recent acquisition of U.S. regional lender Bank of the West for $16.3 billion exemplifies its strategy to expand south of the border, but the move has yet to fully pay off amid ongoing credit pressures.