BMO’s profit jumps in Q2 but sees signs of pressure building on consumers

BMO Financial Group reported its second-quarter profit rose more than 30% compared with a year ago and raised its quarterly dividend, but the bank says it’s staying “vigilant” in the face of ongoing macroeconomic uncertainty.

BMO said Wednesday it earned $2.63 billion or $3.53 per diluted share for the quarter ended April 30, up from $1.96 billion or $2.50 per diluted share a year earlier. It will now pay shareholders a quarterly dividend of $1.71 per share, up from $1.67 per share.

Revenue totalled $9.57 billion for the quarter, up from $8.68 billion in the same quarter last year, while the bank’s provision for credit losses amounted to $739 million for its latest quarter, down from $1.05 billion a year ago.

BMO chief executive Darryl White said the results “reinforce” the trajectory previously outlined by the bank to grow its return-on-equity, which stood at 13% for the quarter compared with 9.4% in the prior year.

“Our progress has been driven by core operating performance, the strength of our diversified businesses and our discipline around cost management, risk optimization and capital allocation,” he told analysts on a conference call.

“All of these improvements position us well to achieve and sustain our No. 1 imperative of a 15% ROE as we exit fiscal 2027.”

White pointed to a “mixed” outlook for the Canadian economy, with modest near-term growth in GDP expected amid inflation and employment challenges. He said the bank is hoping for clarity on the Canada-United States-Mexico Agreement as a renegotiation on the trade deal looms.

“Businesses operate across multiple jurisdictions, and meaningful growth will depend on a co-ordinated approach and alignment across governments to drive a more competitive environment for business,” he said.

Chief risk officer Piyush Agrawal said the North American economy has been resilient amid trade policy uncertainty and risks related to conflict in the Middle East, such as higher oil prices and renewed inflation concerns.

However, he said those pressures appear to be taking a toll on consumers. Agrawal said delinquency rates have been rising and BMO expects that trend to continue, reflecting elevated insolvencies and rising unemployment, particularly in certain regions such as the Greater Toronto Area.

Agrawal said all of those factors “are playing into the consumer psyche.”

“There is some pressure building, but I think that’s transitory,” he said on the call.

“From our experience, nine-out-of-10 delinquent borrowers are self-correcting, and the place where we do take action, we are seeing a very high recovery rate north of 98–99% … We want to see our consumers in their homes, and we are working with them to find them good, handy solutions to come out of the delinquency stage.”

On an adjusted basis, BMO said it earned $3.67 per diluted share in its latest quarter, up from $2.62 per diluted share a year ago.

Analysts on average had expected an adjusted profit of $3.45 per share, according to LSEG Data & Analytics.

Scotiabank analyst Mike Rizvanovic called it “a good quarter for BMO overall … with most business lines exceeding our expectations.”

“The U.S. segment, which remains a focal point for investors, was a positive in the quarter with earnings ahead of our forecasts, largely due to lower expenses, and importantly, sequential growth in commercial loans,” he said in a note.

BMO reported U.S. banking operations earned $790 million in the quarter, up from $601 million in the same quarter last year.

Its Canadian personal and commercial banking earned $884 million, up from $764 million a year ago, helped by higher revenue, as well as a lower provision for credit losses, partially offset by higher expenses.

BMO’s wealth management business earned $428 million, up from $320 million a year ago, while its capital markets operations earned $638 million, up from $434 million in the same quarter last year.

While results were “well-ahead of expectations,” Jefferies analyst John Aiken cautioned that the breakdown of the beat “may give some investors pause.”

“Although there will not likely be any complaints on the performance of U.S. retail or wealth, we note that much of BMO’s upside came from strong results in capital markets while domestic retail underperformed,” he said in a separate note.

“While we do not believe that this will fully take away from BMO’s perceived results, it does remove some of the lustre.”