Global Courant 2023-05-24 18:59:26
Two of Canada’s largest lenders reported quarterly results on Wednesday that suggest a gloomier outlook for Canada’s economy, with profits sharply lowered and a big jump in the amount they set aside to cover bad loans.
Bank of Montreal and Scotiabank posted quarterly results before the markets opened on Wednesday, and while the exact numbers differed, they shared some worrying themes.
Scotiabank said it made a profit of just over $2.1 billion in the three months to the end of April, down 21 percent from the $2.7 billion it made in the same time last year. On an adjusted basis, the bank’s earnings came in at $1.70 per share. That’s less than the $2.16 this time last year and also less than the $1.76 analysts had expected.
Part of the drop in profits was because the bank set aside much more money to cover potentially bad loans on its books. Known as “loan loss provisions,” the closely monitored measure tracks the amount of money the bank sets aside on its books to write off loans it believes are deteriorating.
The bank set aside $709 million during the quarter. In the same period a year ago, loan loss provisions were only $219 million.
BMO numbers
It was a similar story at the Bank of Montreal, where the bank set aside more than $1 billion for bad loans. That’s much higher than the $50 million it took in during the same time a year ago.
Much of that increase in loan loss provisions was due to the loan portfolio inherited from Bank of the West, a US bank that bought BMO last December and closed in February. The acquisition was the largest in BMO history, and while it may help the bank expand its presence in the U.S. in the long run, it came with at least $705 million in loans in the near term that the bank plans to relocate. in its loan loss provisions.
The increases in non-performing loans “reflect uncertain economic conditions,” said analyst Mario Mendonca, who covers both banks for TD.
BMO’s earnings fell sharply to just over $1 billion during the quarter, significantly down from $4.7 billion a year ago, primarily due to costs related to the $16 billion acquisition mentioned above. But even on an adjusted basis, the bank’s earnings were $2.2 billion, or $2.93 per share.
That’s less than $3.23 last year and less than the $3.21 analysts had expected.
Shares in both lenders fell in early trading after the numbers were released, but the news wasn’t just bad for investors. Both banks thought it appropriate to increase their quarterly dividends to shareholders, a sign of confidence in their outlook.
BMO increased its quarterly payout by four cents to $1.47 per share, while Scotia increased by three cents to $1.06.
