BMO misses expectations on higher credit loss provisions, but raises dividend

financialpost.com:

Bank of Montreal on Thursday reported a fourth-quarter profit, but it wasn’t enough to meet analyst expectations as a larger-than-expected rise in provisions for credit losses took its toll.

Net income for the three-month period ending Oct. 31 was $2.3 billion, which was higher than the $1.7 billion earned during the same period last year and resulted in net earnings per share of $2.94.

However, adjusted for certain conditions, the bank earned $1.5 billion compared to $2.2 billion a year ago. This resulted in earnings per share of $1.90. Analysts had expected BMO to earn $2.38 per share, according to a Bloomberg survey.

BMO’s total provisions for credit losses (PCL) — the amount of money banks keep aside to tackle potentially bad loans — increased to $1.5 billion, up from $446 million a year ago.

John Aiken, an analyst at Jefferies Inc., said PCL was 50 per cent more than forecasted as BMO appears to be trying to clear the decks.

“BMO appears to be trying to put its credit issues behind it, with even higher provisions on performing coincident with a spike in reserves against performing loans to buttress against future deterioration,” he said in a note on Thursday. “While this will likely be viewed positively by investors, the degree of relief will be contingent on management’s commentary along with the level of conviction that the market has that credit has peaked.”

The provision for credit losses on impaired loans, those the bank may not get back in their entirety, was $1.1 billion, an increase of $699 million. The bank said this was due to higher provisions across all operating segments, primarily in the corporate and commercial portfolio in the United States and in the unsecured segments of the consumer portfolio in