NYSE:BMO) is a Canadian multinational investment bank and financial services company. Toronto, Canada – April 29, 2024.” data-id=”2151116254″ data-type=”getty-image” width=”1536px” height=”1024px” > Lumos Ajans/iStock Editorial via Getty Images
Updates at 1:06 PM ET with addition of CFRA downgrade and comments headline and fourth and eighth paragraphs.
Jefferies downgraded Bank of Montreal (BMO) to Hold from Buy after the Canadian bank’s earnings missed consensus for a third straight quarter as credit continued to deteriorate.
BMO (BMO) stock slid 5.9% in late Tuesday morning trading after the bank ratcheted up its provision for credit losses to C$906M in its fiscal Q3 ended July 31, 2024, from C$492M in the year-ago quarter.
“The pace of deterioration in credit and BMO’s relative over-exposure to commercial infer ongoing pressure to the bank’s earnings,” analyst John Aiken wrote in a note to clients.
CFRA analyst Alexander Yokum also downgraded BMO (BMO) to Hold from Buy, “reflecting credit concerns as gross impaired loans hit 0.89% (+10 bps Q/Q) in the July quarter vs. the five-year average of 0.59%.” Furthermore, “credit weakness was identified in consumer, commercial real estate, manufacturing, and transportation.”
Management sees elevated credit losses for the next several quarters as it will take time for central bank easing to filter through, CEO Darryl White said during the company’s conference call.
Aiken pointed out that underlying results remain solid, as seen in its preprovision, pretax earnings, supported by a return to positive operating leverage. “However, these improvements were insufficient to negate the increased provisions’ impact on profitability,” he said.
“Consequently, while we do expect that underlying growth will accelerate in BMO’s (BMO) U.S. platforms, we no longer believe that it will be sufficient to offset the credit headwinds and provide earnings outperformance against its peers,” Aiken wrote.
Yokum pointed to the bank’s healthy capital position (CET1) ratio of 13.0%. Other bright spots include Canadian Personal & Commercial Banking benefiting from deposit and loan growth and continued momentum in capital markets.
Aiken’s Hold rating aligns with the SA Quant rating and broke with the average Wall Street rating of Buy.
