Loan loss reserves far exceed expectations, Bank of Montreal (BMO.US) Q4 profit falls short of expectations.

Bank of Montreal (BMO.US) has once again set aside a loss provision far above expectations to cover potential loan losses, resulting in lower than expected earnings. In the three months ending in October, the total credit loss provision was 1.52 billion Canadian dollars (10.8 billion US dollars), significantly higher than analysts' previous forecast of 1.05 billion Canadian dollars. According to a statement on Thursday, the Canadian bank's adjusted earnings per share for the fourth quarter were 1.90 Canadian dollars, below analysts' average forecast of 2.38 Canadian dollars. Q4 revenue was 8.96 billion Canadian dollars, a 7.7% increase year-over-year, with the market expecting 8.38 billion Canadian dollars. BMO's fourth-quarter net profit was 2.3 billion Canadian dollars, up from 1.71 billion Canadian dollars in the same period last year. The bank attributed the decline in profitability mainly to the increase in credit loss provisions, rising from 446 million Canadian dollars a year ago to 1.52 billion Canadian dollars. BMO CEO Darryl White said in a statement, "Our overall performance has been impacted by the increase in credit loss provisions, and we expect that quarterly provisions will ease by 2025 as the business environment improves." The bank has announced solid operational performance this year, but disappointing credit provisions over several quarters. Analysts have been disappointed by the management's failure to clearly explain why the US commercial loan accounts appear to be outliers in credit performance. BMO reported adjusted earnings per share for fiscal year 2024 at 9.68 Canadian dollars, below 11.81 Canadian dollars in 2023, reflecting the impact of increased credit loss provisions for the year. Last year, Bank of Montreal acquired Bank of the West, headquartered in San Francisco, expanding its business footprint in the United States, which also increased the bank's exposure to potential credit losses. The bank's stock price plummeted after announcing third-quarter performance in August, but has rebounded in recent weeks. In a lawsuit involving a multibillion-dollar Ponzi scheme orchestrated by former businessman Tom Petters, Bank of Montreal won a legal victory, during which it received an additional capital boost. The bank announced in September that it had reversed the 875 million Canadian dollars in after-tax provisions previously made for this case in the fourth quarter. Among Canadian banks that announced earnings earlier this week, Royal Bank of Canada and Bank of Nova Scotia both reported credit loss provisions below analysts' expectations. However, National Bankshares, Inc. of Canada had provisions of 162 million Canadian dollars, higher than the average expectation of 154 million Canadian dollars. The bank's common equity Tier 1 capital adequacy ratio (a key measure of financial strength) increased from 12.5% in the same period last year to 13.6%. BMO also announced a 5% increase in quarterly dividends to 1.59 Canadian dollars per share, and plans to repurchase up to 20 million common shares, subject to regulatory approval.