Profits plummet as BMO and Scotiabank set aside hundreds of millions more to cover bad debts

Two of Canada’s biggest lenders released quarterly results on Wednesday that suggest a bleaker outlook for the Canadian economy, with significantly lower profits and a sharp increase in the amount of money they are setting aside to cover bad debts. .

Both Bank of Montreal and Scotiabank released quarterly results before the stock market opened on Wednesday, and while the exact numbers differ, they share some worrying themes.

Scotiabank said it made a profit of just over $2.1 billion in the three months to the end of April, down 21% from the $2.7 billion it reported. won at the same time last year. On an adjusted basis, the bank’s profit was $1.70 per share. That’s less than the $2.16 from the same time last year and also less than the $1.76 that analysts were expecting.

Part of the decline in profits is due to the bank setting aside significantly more money to cover potentially bad loans on its books. Known as “provision for credit losses”, this closely watched measure tracks the amount of money the bank sets aside on its books to write off loans it thinks may go bad.

The bank set aside $709 million during the quarter. In the same period a year ago, its provisions for credit losses were just $219 million.

BMO numbers

It was the same story at the Bank of Montreal, where the bank set aside more than $1 billion for bad debts. This is much more than the 50 million dollars recorded at the same time a year ago.

Much of this increase in provisions for credit losses is due to the loan portfolio inherited from Bank of the West, a US bank that BMO bought last December and finalized in February. The acquisition was the largest in BMO’s history, and while it could help the bank expand its U.S. presence in the long term, in the short term it was accompanied by at least 705 million dollars of loans that the bank chooses to move. in its provisions for credit losses.

The rise in non-performing loans “reflects uncertain economic conditions,” said analyst Mario Mendonca, who covers both banks for TD.

BMO’s profits fell to just over $1 billion in the quarter, well down from $4.7 billion a year ago, mainly due to costs associated with the acquisition of 16 billion dollars mentioned above. But even on an adjusted basis, the bank’s profit was $2.2 billion, or $2.93 per share.

That’s down from $3.23 last year and less than the $3.21 analysts expected.

Shares of both lenders were down in early trading after the figures were released, but the news was not all bad for investors. The two banks have seen fit to increase their quarterly dividend to shareholders, a sign that they are confident in their prospects.

BMO raised its quarterly payout by four cents to $1.47 per share, while Scotia increased by three cents to $1.06.

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