(Bloomberg) -- Bank of Montreal and Bank of Nova Scotia kicked off Canadian bank earnings season with strong results from their capital-markets divisions amid an increase in trading activity.
Both lenders beat analysts’ estimates for the fiscal first quarter even as they highlighted the swirling uncertainty of North American trade and warned that tariffs could lead to challenges for their clients and impact their credit outlook.
Bank of Montreal earned C$3.04 per share on an adjusted basis, it said in a statement Tuesday, topping the C$2.42 average estimate of analysts in a Bloomberg survey. It reported C$591 million ($414 million) in adjusted net income at its capital-markets unit for the three months through January, up 45% from C$408 million a year earlier.
The division posted record revenue of C$2.07 billion in the quarter, Bank of Montreal said, citing “strong client activity” as the driver. Its shares surged as much as 6.1% Tuesday morning, their biggest intraday gain since August 2020.
Scotiabank earned C$1.76 per share on an adjusted basis during the period, the company said in a statement, more than the C$1.65 average estimate. The Toronto-based lender said net income at its global markets and banking division increased 33% to C$517 million in the first quarter.
Chief Executive Officer Scott Thomson, speaking on a conference call with analysts, pointed to “particular strength across our capital-market businesses as clients reacted and repositioned their portfolios” in reaction to the evolving economic picture.
Jefferies Financial Group Inc. analyst John Aiken called the results for both banks positive but cautioned that capital-markets earnings can be seen as volatile and “may not be fully rewarded by the Street.”
Meanwhile, both banks cited the impact of potential tariffs on the performance of loans that are not yet in default, with Bank of Montreal setting aside C$152 million in provisions for performing loans, down slightly from a year earlier, and Scotiabank putting C$98 million aside, up from C$20 million.
Scotiabank’s overall provisions for credit losses totaled C$1.16 billion, more than the C$1.09 billion analysts had forecast. Its shares were down 2% to C$70.80 at 10:03 a.m. in Toronto.
President Donald Trump’s administration has generated significant uncertainty surrounding the fate of US trade with Canada as well as Mexico, where Scotiabank also has a significant operation.
BMO Provisions
At Bank of Montreal, provisions for credit losses totaled C$1.01 billion, less than the C$1.08 billion analysts had forecast. The bank’s credit performance has hurt results for the past year, but analysts were expecting an improvement this quarter after management said in December that the fourth quarter represented a “high point” for provisions.
“Provisions for credit losses declined from the prior quarter as expected, and we initiated our share-buyback program,” Chief Executive Officer Darryl White said in his bank’s statement.
The lender also posted strong earnings growth in its wealth-management division, where adjusted net income was up 53% from a year earlier, while its US personal and commercial division saw a more modest increase of 2%. Bank of Montreal’s Canadian operations posted a 3% decline in adjusted earnings amid higher expenses and provisions for loan losses.
‘Good News’
“There was plenty of good news in the capital-markets business, but all other segments beat the Street as well,” Scotiabank analyst Meny Grauman wrote in a note to clients. “BMO closed out a tough 2024 with the promise that it was putting its credit issues behind it, and kicked off the new year with proof that this was in fact the case.”
Bank of Montreal acquired San Francisco-based Bank of the West in 2023, increasing both its US footprint and exposure to potential credit losses, particularly on the commercial front.
Still, the lender’s US exposure could prove to be an advantage this year as trade tensions darken the economic picture in Canada. Bank of Montreal also generates almost half of its capital-markets revenue south of the border.
Scotiabank’s net interest margins benefited from the lower-interest-rate environment, Aiken said in a note to clients Tuesday, though he added that its Canadian and international units both posted declines in year-over-year earnings amid higher provisions for loan losses.
The lender’s net interest income — the difference between what a bank earns on loans and pays out on deposits — totaled C$5.17 billion in the quarter, up 8.4% from a year earlier.
Rate Cuts
The Bank of Canada brought its policy rate down by 200 basis points to 3% over the span of less than eight months, and Scotiabank is the Canadian lender that benefits the most from lower rates due to its higher cost of funding. The rate cuts are expected to be a major driver in the bank’s earnings growth this year.
Scotiabank has recently made several strategic moves aimed at redirecting its capital from Latin America to Canada and the US. It completed its acquisition of a 14.9% stake in Cleveland-based KeyCorp late last year, and announced plans in early January to transfer its operations in Colombia, Costa Rica and Panama to Banco Davivienda SA of Colombia.
The bank incurred an after-tax impairment loss of C$1.36 billion on the transfer of those operations in the first quarter, it said Tuesday, the main reason its reported net income fell 55% from a year earlier to C$993 million.
(Updates with shares beginning in fourth paragraph.)
