Harris Bank parent cuts jobs as profit falls on loans

Bank of Montreal, the first Canadian bank to report second-quarter results, cut about 1,100 jobs after reporting its biggest profit decline in seven years. The stock soared after profit topped analysts' estimates.

Net income for the quarter ended April 30 fell 44 percent to C$358 million ($316 million), or 61 cents a share, from C$642 million, or C$1.25 a share, a year earlier, the Toronto-based bank said today in a statement. Revenue rose 1.3 percent to C$2.66 billion.

Canadian banks will probably report their sixth straight quarter of declining profits on rising loan losses amid a recession, said Macquarie Capital Markets analyst Sumit Malhotra. Bank of Montreal, Canada's fourth-biggest bank, set aside C$372 million for bad loans, largely in the U.S., up from C$151 million a year earlier.

"Loan losses got so small a couple years ago, so there was really nowhere to go but up," said John Kinsey, who helps manage about C$1 billion including bank shares at Caldwell Securities Ltd. in Toronto. "The economic situation has exacerbated that particular area and it's only going to get worse."

Bank of Montreal's profit beat estimates, helping lift most bank stocks. Excluding one-time items such as severance costs, profit was 93 cents a share, the bank said. That topped the median estimate of 88 cents a share from 13 analysts surveyed by Bloomberg.

Bank of Montreal rose C$1.67, or 4.1 percent, to C$43.29 at 11:13 a.m. on the Toronto Stock Exchange. The stock has risen 39 percent this year, outpacing the 21 percent rise of the nine- member S&P/TSX Banks Index. Toronto-Dominion Bank and Royal Bank of Canada also rose.

"BMO's results were solid and better than most market participants anticipated, us included," Dundee Securities Corp. analyst John Aiken said in a note. "Provisions for credit losses were the biggest surprise in the quarter, coming in well below expectations."

Aiken had forecast provisions of C$425 million.

Bank of Montreal's earnings were pared by C$80 million, or 15 cents a share, from a writedown tied to Apex Trust, a fund with investments in credit-default swaps. The bank also reported C$118 million in severance costs from "simplifying" its management structure, according to Chief Executive Officer Bill Downe. The job cuts represent about 3 percent of the workforce, according to spokesman Paul Deegan.

"This is a strategy they'd laid out over several quarters," Craig Fehr, an analyst at Edward Jones in St. Louis, said in an interview. "In this environment, we've clearly seen that these banks are focused on trying to manage expenses."

Canadian consumer banking profit rose 9.4 percent to C$350 million from a year earlier on growth of deposits. Profit from its Chicago-based Harris consumer bank fell 17 percent to C$25 million, after U.S. loan losses surged more than eight-fold to C$143 million.

The BMO Capital Markets investment-banking unit earned C$249 million, up 33 percent from a year earlier, on higher revenue from corporate banking and arranging stock sales. Earnings were pared by a C$215 million pretax writedown for its investment in Apex Trust, partly offset by a C$98 million adjustment.

BMO Capital Markets arranged 13 stock sales valued at $1.1 billion in the quarter, compared with six deals valued at $663 million a year earlier. The firm arranged $1.12 billion in takeovers that closed in the period, down from $23.5 billion in deals a year ago, according to Bloomberg data.

Profit from the private-client group, which includes brokerage, investing services and mutual funds, fell 42 percent to C$62 million. Bank of Montreal's mutual fund sales fell 82 percent to about C$50 million in the three-month period, from about C$271 million a year earlier, according to statistics from the Investment Funds Institute of Canada.

Toronto-Dominion, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada are scheduled to report results May 28. Royal Bank, the country's largest lender, reports May 29.