TORONTO — Bank of Montreal (TSX:BMO) said Tuesday that it has cut 475 full-time jobs at its recently acquired Milwaukee-based bank and boosted estimates for cost savings from the addition to U.S. operations.
“Workforce reductions have been identified as we continue to work on eliminating duplication,” said BMO president and CEO Bill Downe said on a conference call to discuss the bank’s strong third-quarter earnings.
The Canadian bank originally anticipated US$250 million of cost savings from the acquisition of Marshall & Ilsley Corp., but increased that target to US$300 million in its second-quarter report.
Canada’s fourth-largest bank said integration and restructuring costs for M&I are expected to be $600 million “over the next few years,” with the bank recording $53 million in such costs in the most recent quarter.
The staff reductions come as some of the world’s biggest banks lay off thousands of employees as they try to trim payrolls to adjust to tougher market conditions.
HSBC said earlier this month that it would cut 30,000 jobs worldwide by 2013 and sell almost half its retail bank branches in the U.S. following similar job-cutting moves by Credit Suisse and UBS.
In the Bank of Montreal’s most recent quarter, the first to include results from M&I, it beat analysts’ expectations, kicking off Canadian bank earnings season on a positive note.
The bank’s net income was $793 million for the three months ended July 31, up 18 per cent from the same time last year. Its adjusted net income was $843 million, or $1.36 per share.
Analysts had been looking for $1.32 of adjusted net income, according to estimates compiled by Thomson Reuters.
Over 26 days between the closing and quarter-end on July 31, M&I’s operations added $117 million of revenue to BMO’s third- quarter results and $32 million of adjusted net income, which excludes integration and related costs.
However, Downe warned that the bank may not be able to continue the trend of strong results as global economic uncertainty worsens.
“The risk of an economic downturn is higher and equity markets are clearly reflecting the uncertain prospects for growth,” he said.
As a result, BMO will keep a lid on expense growth going forward after reporting higher expenses in the third quarter due to more performance-based employee compensation, in addition to higher computer and travel expenses.
The possibility of a double dip recession in the U.S. could slow consumer spending and loan growth and could also force more customers to default on their mortgages and other loans, which would also eat into the bank’s profits.
Still, BMO sees its portfolio of banks throughout the U.S. Midwest as uniquely-positioned as they are spread over six states that have a larger GDP than all of Canada.
The addition of M&I, which BMO bought in December, about doubled the number of branches at Chicago-based BMO Harris Bank to nearly 700.
“Looking at our results going forward, I remain optimistic,” Downe said. “But we expect a lift in our results from the integration synergies we’ve identified.”
“We’re differentiated by our leverage to and opportunities in the commercial business, credit trends are positive, our increased U.S. leverage provides significant upside when the U.S. economy recovers and our Canadian retail and capital markets businesses are well-positioned for continued earnings growth,” he said.
During the quarter, provisions for credit losses — or the money needed to set aside for bad loans — fell to $174 million, down $40 million from a year ago.
Bank of Montreal’s total revenue was $3.27 billion, up $367 million or 13 per cent from the third quarter of fiscal 2010.
The bank’s Capital Markets division increased its revenues 23 per cent to $837 million, or 26 per cent of BMO’s total revenues. The increase was mainly due to higher trading volumes and revenues from mergers and acquisitions fees.
But the bank saw lower net income in its corporate services unit due to lower revenues and integration costs.
The lower U.S. dollar cut out $73 million from revenue growth.
Barclays Capital analyst John said BMO’s solid third-quarter performance in a challenging business climate raised the bar for the other big Canadian banks that have yet to report. Earnings reports from National Bank (TSX:NA) and Royal Bank of Canada (TSX:RY) are expected later this week.
“Underscoring the solid quarter was strong earnings contributions from all key business segments, while core expenses remained relatively flat, generating modest positive operating leverage for the quarter. Although credit quality provided added lift to the bottom line, the pace of improvement continued to ease in the quarter,” he wrote in a note.
“While the minimal domestic retail margin compression was a distinct positive, BMO and its peers continue to face an outlook of slowing volume growth. Further, management was quick to moderate expectations on the call, citing several near-term headwinds.”
However, he noted, the integration of M&I is a risk for BMO that the other banks do not face and could cap any increase in the price-earnings ratio at the bank.
Bank of Montreal has more than 47,000 employees across its North American operations, which include retail banking, wealth management and investment banking, as well as its Chicago-based Harris Bank subsidiary.
BMO has a presence in 15 states including BMO Harris branches in Illinois, Indiana, Wisconsin, Arizona, Florida, Minnesota, Missouri and Kansas and additional affiliated locations in California, New York, New Jersey, Texas, Nevada, Virginia and Washington
BMO shares closed up more than four per cent, or $2.45, at $59.80, helping to lift the entire financials sector, which closed up 3.5 per cent.