BMO Bank of Montreal sets sights on U.S. expansion after year of overhaul

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A person walks by the Bank of Montreal in Toronto on August 28, 2012. The Bank of Montreal has reported a big increase in quarterly and annual profit, beating analyst estimates by a wide margin. For the fourth quarter ended Oct. 31, BMO had a $1.08-billion profit in the fourth quarter, a 41 per cent increase over the same time last year. That amounted to $1.59 per share of net earnings before adjustments. THE CANADIAN PRESS/Michelle Siu

The Bank of Montreal (TSX:BMO) has set it sights on growing its U.S. business, it said Tuesday after spending more than a year overhauling and revamping the operations.

BMO chief executive Bill Downe said the bank is launching a massive advertising blitz now that the integration of Milwaukee-based Marshall and Ilsley Corp. is complete.

"This month we're blanketing our U.S. footprint with some of the strongest advertising and promotions the bank has ever developed, online, outdoor, broadcast and in-branch," Downe said on a conference call with analysts.

"A significant value in our U.S. business has been realized and 100 per cent of our efforts are now back on our first priority, being in the market with confidence, growing our customer base and building the bank and its earnings as a consequence."

BMO doubled down on its U.S. operations when it acquired Marshall and Ilsley last year for US$4.1 billion in a bid to give it the scale and reach needed to compete south of the border.

The work at BMO Harris Bank, its banner in the U.S., included a rebranding and refreshing of more than 600 bank branches and the upgrading of more than 1,300 bank machines.

The push in the U.S. came as BMO reported a fourth-quarter profit of $1.08 billion on Tuesday as its capital markets business more than doubled its earnings compared with a year ago. On a per share basis for the quarter ended Oct. 31, BMO reported a profit of $1.59 per share, up from $768 million or $1.11 per share.

BMO's revenue in the fourth quarter from all business segments totalled $4.18 billion, up from $3.82 billion in the fourth quarter of 2011.

The bank's adjusted earnings amounted to $1.65 per share compared with expectations of $1.43 per share on an adjusted basis for the fourth quarter, according to estimates compiled by Thomson Reuters. The quarterly revenue estimate had been $3.8 billion.

The increase came as the bank said the Canadian housing market appeared to be slowing in most markets.

"We continue to see growth in residential mortgage market share, and believe the changes to Canada's mortgage market announced earlier this year, which are aligned with BMO's risk practices and ongoing efforts to encourage Canadians to borrow smartly, are having the desired moderating effect on housing prices in most markets," Downe said.

He noted that a "concerted focus on efficiency was reflected in a reduction of 700 full-time employees."

BMO Capital Markets helped drive the quarter as the division earned $293 million, up from $143 million a year ago.

Personal and commercial banking in Canada earned $439 million, about the same as a year ago, while the U.S. division earned $130 million, down from $155 million.

Downe said the bank completed the conversion of its core banking platform in the U.S. during the quarter.

"Over the past two years, with the acquisition of Marshall & Ilsley Corp., we have fundamentally transformed the bank, changed its growth trajectory, and enhanced long-term value for shareholders.

"BMO Harris Bank has strong deposit market share positions in our core Midwest markets, and our U.S. footprint has doubled in size."

The bank's private client group earned $166 million for the quarter, up from $137 million.

Despite the better than expected results, RBC Capital Markets analyst Andre-Philippe Hardy maintained a "sector perform" rating on the bank.

"We continue to believe that the shares of banks with better revenue growth will perform better in the next 12 months," Hardy wrote in a note to clients.

He noted that BMO did not grow year-over-year revenues for its Canadian personal and commercial banking, while revenue slipped five per cent at its U.S. personal and commercial banking operations.

"We believe that better revenue growth in retail banking divisions is needed for BMO's stock to perform well on a sustained basis relative to peers," Hardy wrote.

The quarter brought Bank of Montreal's total earnings for the 2012 financial year to $4.19 billion or $6.15 per diluted share, up from $3.11 billion or $4.84 per diluted share the previous year.

Revenue for the full 2012 financial year increased to $16.1 billion from $13.9 billion.

In the third quarter, the bank announced plans to close 24 of its U.S. BMO Harris bank branches in the U.S. Midwest, as an effort to scale back on overlapping branches after the acquisition of Marshall & Ilsley.

BMO was one of the Canadian banks that was put under review by Moody's Investors Services, which rates the credit of governments, public sector institutions and corporations.

Moody's said the review was prompted by concerns about consumer debt levels and home prices in Canada, where the banking sector is the major source of mortgage lending.

BMO also said Tuesday it will buy back up to 15 million of its shares on the Toronto Stock Exchange through a normal course issuer bid that will end on Jan. 24, 2014.

There were about 650.7 million BMO common shares issued and outstanding at Oct. 31.

Shares in the company closed up 34 cents at $59.63 on the Toronto Stock Exchange on Tuesday.