Severance costs ate into the Bank of Montreal’s second-quarter earnings, as the lender said it was trying to align its capital-markets business with current market conditions.
BMO announced its financial results for the three months ended April 30 on Wednesday, reporting a profit of nearly $1.5 billion, up 20 per cent from the same quarter last year.
The bank’s adjusted earnings per share for its fiscal second quarter were $2.30, a five-per-cent increase over last year but two cents below analysts’ expectations.
Those earnings were weighed down by job cuts, as BMO’s quarterly results included a $120-million pre-tax severance expense for its investment-banking unit.
Darryl White, the bank’s chief executive officer, said they were taking “disciplined actions” to execute on their strategy and position themselves for ongoing growth.
“For example, we’ve made organizational changes within our capital markets group to align resources with the revenue environment,” White said during a conference call Wednesday morning, adding that the severance cost had reduced its adjusted earnings by 14 cents per share.
Dan Barclay, head of BMO Capital Markets, said during the call that there was no change in strategy and that there had been no closures of any businesses. The severance expense, Barclay said, is expected to provide $40 million in savings this year and $80 million for 2020.
The number of full-time equivalent employees for the second quarter for BMO Capital Markets was 2,764, up slightly quarter-over-quarter and an increase of more than 200 jobs over the same period last year, according to the bank’s supplementary financial information. Earlier media reports, however, indicated that BMO cut about 100 capital-markets jobs earlier this month.
BMO also reported a pre-tax, bank-wide charge for the second quarter of its fiscal 2018 of $260 million, which was mostly tied to severance as well.
Meanwhile, BMO’s $396-million acquisition of New York-based fixed income broker-dealer KGS-Alpha Capital Markets was completed last September, and the bank reported on Wednesday before-tax that there were integration costs tied to KGS of $8 million for its first two fiscal quarters.
BMO’s personal and commercial business in the United States was the standout performer for the bank’s second quarter, as profit from the unit rose 17 per cent over last year to $406 million. Net income from the bank’s Canadian P&C increased five per cent, to $615 million.
The bank also announced it would hike its quarterly dividend by three cents, to $1.03 per share.
“Headline results missed estimates though included $0.14 per share of non-recurring severance in the Capital Markets business, but also a surge in trading revenues,” wrote CIBC Capital Markets analyst Robert Sedran in a note Wednesday morning. “We are inclined to more of a ‘notionally in line to modestly ahead’ view, especially given underlying trends in other key operating segments.”
• Email: [email protected] | Twitter: GeoffZochodne
Copyright Postmedia Network Inc., 2019
