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Bank of America Securities downgraded Bank of Montreal (NYSE:BMO) to Neutral from Buy due to lack of visibility on credit costs.
The Canadian bank took a larger than expected provision for credit losses during its fiscal Q3, mostly for pandemic-era lending, management said on the earnings call, when companies may have been supported by fiscal stimulus spending.
“Management downplayed any systemic risk tied to lax underwriting that is driving the higher-than expected credit losses,” BofA analyst Ebrahim Poonawala wrote in a note to clients. “However, it is unclear to us whether management has gotten ahead of future issues, potentially leaving the door open for additional negative credit surprises.”
In addition, the outlook for improved profitability appears to rely on the macro backdrop, limiting valuation upside, Poonawala said.
BofA trimmed its Q4 and FY2025 EPS estimates for BMO (BMO) by ~10%, on average.
BofA analysts expect investors to remain cautious on the stock until there are clear signs of improving credit quality.
Poonawala’s Hold rating on BMO (BMO) aligns with the SA Quant rating and diverges from the average Wall Street rating of Buy.
