Bank of Montreal's better-than-expected credit performance is expected to kick off warm, fuzzy feelings for the entire sector.
BMO continued to exceed analyst expectations by putting up quarterly results on Wednesday that included lower-than-expected loan loss provisions. Analyst John Aiken at Barclays Capital said: "We believe that BMO's results set a very positive tone for earnings this quarter."
"Improving credit quality should help all of the banks, although the lack of improvement in credit card impairments may mean that CIBC may not generate the same overall improvements, given its relative exposure," said Mr. Aiken. CIBC has the largest credit card loan portfolio among Canadian banks.
Bank of Montreal's investment dealer arm also had a strong quarter, and Mr. Aiken said that bodes well for Royal Bank of Canada and National Bank, which both draw a relatively high percentage of their revenues from capital markets.
In an observation that will be well received at BMO, Mr. Aiken pointed out that this bank has established a track record for outperformance, and rivals may not keep pace.
"We caution that BMO has outperformed in terms of earnings over the past two quarters," said the Barclays analyst. "While it does look like the banks can exceed consensus based on BMO's results, if the previous quarters are an indication, the remaining banks may not generate the same strength in their positive surprises."
Andrew Willis