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BMO's second quarter profit slides as consumer loan growth continues to slow

TORONTO – Bank of Montreal (TSX:BMO) saw its second-quarter profit fall compared with a year ago as it grappled with slowing consumer loan growth and pulled back a little from the auto loan business.

Canadian consumers are already stretched thin and have been hesitant to take on more debt, while cooling housing markets across much of the country have slowed growth in the mortgage business. That has sparked concerns about future growth for Canadian banks.

Meanwhile, BMO’s head of Canadian personal and commercial banking said the bank pulled back somewhat on its auto loans business, as several trends — such as the growth of longer-term loans and higher loan amounts — made the lender “a little bit uncomfortable.”

“We believe in this business,” Cameron Fowler told investors and analysts during a conference call Wednesday. “We like the risk-adjusted returns. We just wanted to pull back a little bit, from a risk perspective, on that, which we did do.”

BMO earned $999 million, or $1.49 per share, in the latest period, down from $1.08 billion or $1.60 per share a year ago.

That included a $106-million charge for restructuring some of its operations, including trimming its management head count, and dealing with a legal matter.

“It’s, in part, the consequence of investment in technology, in that the technology makes our operations more efficient,” said chief financial officer Thomas Flynn. “We’re doing more things through technology and, as a result, we need fewer people, so the amount of the charge relates entirely to severance.”

On an adjusted basis, net income amounted to $1.71 per share, beating analyst expectations of $1.66 per share, according to data compiled by Thomson Reuters.

Revenues climbed to $4.5 billion from $4.4 billion a year ago.

The bank raised its quarterly dividend to 82 cents from 80 cents. On the Toronto Stock Exchange, its shares were unchanged at $77.90.

Analysts said the bank’s capital markets and wealth management divisions performed well, but results from its domestic retail operations were disappointing.

“It’s very difficult to grow loans in the current environment,” said Edward Jones analyst Jim Shanahan. “The consumer is highly leveraged and, in my opinion, just doesn’t have a lot of incremental capacity to add any more debt.”

Barclays analyst John Aiken said he expects two of the tail winds that benefited the bank during the quarter — strong capital markets revenues and low provisions for credit losses — may dissipate somewhat in the second half of the year.

“Slowing retail loan growth is one of our more immediate concerns for BMO and the broader industry,” Aiken said in a note to clients.

Overall, Shanahan said BMO’s quarterly results were positive and should quell fears about low oil prices in Alberta giving rise to dramatically higher credit losses for Canada’s big banks.

But as many of the country’s housing markets cool — excluding Toronto and Vancouver, where home sales and prices continue to defy gravity — it will be a challenge for the lenders to grow their domestic loan books going forward.

“Mortgage loan growth is going to slow, for sure,” Shanahan said.

National Bank (TSX:NA) also reported its earnings on Wednesday. The country’s sixth-largest bank said its second quarter net income was $404 million, or $1.13 per share, up nearly 12 per cent from $362 million, or $1.01 per share, a year earlier.

Adjusted profits increased 10 per cent to $411 million or $1.15 per share, three cents above expectations, while revenue grew to $1.42 billion from $1.28 billion. It’s shares closed up two cents at $49.36.

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