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Bank of Montreal Q4 profit rises

TORONTO — Profits at Bank of Montreal (TSX:BMO) improved 16 per cent in the fourth quarter as the bank reduced costs and booked lower provisions for bad loans than it did in the same period a year earlier.

TORONTO — Profits at Bank of Montreal (TSX:BMO) improved 16 per cent in the fourth quarter as the bank reduced costs and booked lower provisions for bad loans than it did in the same period a year earlier.

The results are “a reflection of the strength in our core businesses that’s been emerging over a number of quarters,” Bill Downe, BMO’s president and chief executive officer, said on a conference call.

“It was achieved while we simultaneously dealt with issues resulting from the economic environment.”

BMO, the first of Canada’s big banks to report its fourth-quarter and year-end results for 2009, reported overall net income of $647 million or $1.11 for the quarter ended Oct. 31. That was up from $560 million or $1.06 a year ago.

Total revenue for the quarter increased 6.3 per cent to $2.99 billion from $2.81 billion last year.

The bank said growth in all operating groups and a reduction in corporate services helped boost its revenue during the fourth quarter, which ended Oct. 31. This was offset, however, by the weaker U.S. dollar which decreased revenue growth by $20 million from a year ago.

Canadian personal and commercial banking, the bank’s largest business unit, reported net income of $394 million, a 22 per cent increase from a year ago. BMO said commercial banking continues to experience strong growth, while the bank’s market share for loans to small and medium size businesses increased from the prior year period.

Downe added that tight control over staffing levels and supplier costs helped bolster earnings.

“Our objective is to grow revenue with the same workforce, if we can do that,” he said when asked if the bank will reduce its employee numbers.

“The increases that we’ve seen because of acquisition have pretty much been offset by streamlining of the back office and simplifying the sales process.”

The bank’s provision for credit losses, or bad loans, which occur when its clients don’t repay loans, decreased to $386 million during the quarter. That was down $79 million from last year. The provision for general losses was unchanged.

Chief risk officer Thomas Flynn told analysts that loan losses will remain elevated into the first few months of next year.

Barclays analyst John Aiken said the quarterly results easily beat his expectations of 98 cents a share, and provide a good idea of how the rest of the banking season should play out.

He highlighted that trading revenues were off about 47 per cent to $262 million over the same time last year, which could signal troubles brewing at other banks in the same division.

“That’s probably going to put some headwinds against Royal and National,” Aiken suggested.

Meanwhile, BMO’s credit deterioration largely occurred in the United States.

“That’s likely to create some earnings headwinds for banks that also have U.S. retail platforms like Royal, TD, and Bank of Nova Scotia, which also has a fairly sizable U.S. corporate lending book,” Aiken added.

Bank of Montreal is the first of the big Canadian banks to post its earnings, with CIBC (TSX:CM) and TD Bank (TSX:TD) National Bank (TSX:NA) next in line to report on Dec. 3.

For fiscal 2009, BMO said its net income decreased 9.7 per cent to $1.8 billion.

The bank said its annual net income was lowered by $474 million after-tax due to notable items. These were made up of $355 million in charges related to the capital markets environment, $80 million in severance costs and a $39 million increase in the general allowance for credit losses.

Annual revenue totalled $11.1 billion compared to $10.2 billion in fiscal 2008. Expense control helped boost revenue growth in 2009, but was offset by increased provisions for credit losses and higher income taxes, BMO said.

Also on Tuesday, BMO announced separately it has agreed to buy the Diners Club North American franchise from Citigroup. The deal gives BMO exclusive rights to issue Diners Club cards to corporate and professional clients in the United States and Canada.

BMO said the deal will more than double its corporate card business, representing US$7.8 billion in card transactions annually and net receivables of almost US$1 billion.

The bank also said Tuesday that it has completed the acquisition of the group retirement record-keeping business of ICMC Group Retirement Services Inc, a subsidiary of Integra Capital Management Corp.

BMO’s shares slipped 41 cents to close at $53.14 on Tuesday at the Toronto Stock Exchange.