BMO Financial Group Reports Disappointing Results Due to Rise in Bad Loans
In a recent report, BMO Financial Group shares plummeted nearly nine percent following results that fell short of expectations due to increased loan-loss provisions and challenges in U.S. growth. The bank’s expansion in the United States, particularly with the acquisition of Bank of the West for US$16.3 billion, has faced difficulties in a challenging economic environment along with pressure on Canadian borrowers from higher interest rates.
CEO Darryl White acknowledged the elevated credit risk, attributing it to prolonged higher interest rates impacting individuals and businesses. The banking industry in the U.S. has also been under pressure, leading to a profit of $1.87 billion in the latest quarter, down from $1.03 billion a year prior. Analysts had expected a profit of $2.77 per share, but BMO only earned $2.59 per diluted share on an adjusted basis.
The bank’s provisions for credit losses in the quarter totalled $705 million, with impaired loans increasing significantly. Provisions on impaired loans rose to $658 million, including losses in both the Canadian and U.S. divisions. Chief risk officer Piyush Agrawal highlighted the impact of credit card delinquencies and consumer insolvencies on the bank’s performance.
Despite the challenges, BMO’s revenue increased to $7.97 billion, with growth in the Canadian personal and commercial banking, wealth management, and capital markets sectors. However, the corporate services segment reported a loss of $328 million in the second quarter.
Analysts and industry experts are closely monitoring the bank’s performance, with Scotiabank analyst Meny Grauman noting that the current economic conditions may lead to higher provisions for credit losses in the future. The bank’s ability to navigate these challenges will be crucial in sustaining its financial performance in the coming quarters.
Overall, BMO Financial Group’s latest results reflect the ongoing impact of economic conditions on the banking sector, highlighting the need for careful risk management and strategic decision-making in a rapidly changing environment.
This report by The Canadian Press was first published on May 29, 2024. Companies in this story: (TSX:BMO)
