Bank of Montreal on Aug. 25 reported that bad oil-and-gas loans increased sharply in the third quarter but profit topped market expectations on growth in its wealth management unit and personal and commercial banking.
BMO shares, which have shed about 12 percent in the last three months, climbed 4.8 percent to $69.37 on Aug. 25, joining a broad market rebound after a sharp selloff in the previous session.
BMO's results kicked off the earnings season for major Canadian banks at a time investors are concerned about a sluggish Canadian economy and turmoil in the energy industry.
BMO's gross impaired loans from the oil-and-gas sector jumped fourfold to C$106 million in the quarter from C$26 million in the second quarter. They were C$1 million in the year-earlier period.
Almost all of the weakness was from the U.S. market, where BMO, Canada's fourth-largest bank, has a significant presence. U.S. energy companies tend to have more debt than their Canadian peers.
"It is a pretty sharp increase," Edward Jones analyst James Shanahan said. "This is absolutely a trend. It is substantial weakness within the oil-and-gas portfolio at BMO, no doubt."
The numbers underscored how the oil selloff was affecting Canadian lenders, who are very active in the energy industry. On Tuesday, oil bounced back from heavy losses but global oversupply and worries about the severity of the economic slowdown in China kept prices near 6-1/2-year lows.
"This may be only the tip of the iceberg. You're going to see this continue and develop," said David Cockfield, managing director and portfolio manager at Northland Wealth Management, about the bad loans in the energy sector. Northland is a BMO shareholder.
"It's a fairly significant adjustment in a major industry. So it is a concern," he added.
At Bank of Montreal's personal and commercial banking unit, net income in the quarter at the U.S. division jumped 38 percent, while profit at the Canadian segment rose 6 percent. Wealth management profit increased 6 percent.
Total net income in the quarter ended July 31 rose to C$1.19 billion, or C$1.80 per share, from C$1.13 billion, or C$1.67, in year-earlier period. On an adjusted basis, earnings were C$1.86.
Analysts, on average, expected earnings of C$1.73 a share, according to Thomson Reuters I/B/E/S.
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