Bank of Montreal leads Canada to recovery
It’s not often nowadays that one hears of a bank that is able to exceed the expectations of its shareholders and investors, but that is exactly what Bank of Montreal has been able to achieve with its latest financial results
The bank’s profit of $1.1bn for the last quarter was 34 percent higher than that of the same quarter last year. Unusually for the banking world, the corporate services arm of the bank is largely responsible for the bank’s current success.
This ‘throw rug’ division, under which a large number of miscellaneous services such as revenues from securitisation of activities, certain impaired loans and back office operations and technology are classified, doesn’t often get a lot of press coverage. Its sterling profit for the quarter under discussion, however, suddenly has everyone taking a second look at its operations.
Corporate services, with a profit of $223m, accounted for just over 20 percent of the bank’s total profit. This compared favourably with a loss of $110m the same period last year.
An analyst at National Bank Financial, Peter Routledge, said: “there’s a lot of noise going on in these results,” and Brad Smith, an analyst from Stonecap Securities put it even more bluntly: “The results were uninterruptible by anyone other than an accountant who’s got all the information.”
The bank’s CEO, William A. Downe, was more upbeat. He said: “Our focus on customers and investing prudently in the business is serving us well, and this is reflected in both our financial results and the momentum of the bank.”
By excluding ‘unusual’ items, the net income of the corporate services division was only $62m. This can largely be ascribed to the acquisition of lending company Marshall and Ilsley, which helped turn around the previous year’s loss to a profit by adding a net income of $186m to the bank’s coffers.
Structured credit business is another significant component of the corporate services division. This section includes the remnants of a number of ‘special purpose’ investment vehicles that are currently being wound down following the financial crisis. These securitised assets now have to form part of the bank’s balance sheet in terms of new IFRS accounting regulations.
Moving these securitised assets to corporate services boosted the profits of the division by $148 as a result of stronger assets values. While the decision to move these assets away from core services to the corporate services division could be seen as a positive move, it also made it much more apparent that the bank did not do all that well with its core operations once these ‘special investment vehicles’ were removed.
The profits of the domestic retail banking division dropped by 6.7 percent to $446m.
Perhaps CEO Downe was referring to this when he said: “We’re working hard to improve operating leverage and ensure a competitive cost base and direct spending to support our highest priority, our front line employees and every interaction we have with our customers.”
