FINANCIAL SERVICES REPORTER
Bank of Montreal is planning to kick its mortgage business back into growth mode, after another quarter in which it lost market share to rivals.
BMO reported a first-quarter profit of $657-million yesterday, up from $225-million a year ago, making it the third Canadian bank to consecutively top analysts expectations. Its cash earnings per share came in at $1.13, while the Street had been forecasting profit of about $1.03 per share.
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The bulk of BMO's earnings came from its Canadian lending operations, while profit from its U.S. lending business was 43 per cent lower than a year ago.
"We just had our sixth terrific quarter in a row," Frank Techar, the head of the bank's Canadian lending arm, said in an interview.
Mr. Techar took over those struggling operations in July 2006, after a period in which the bank's profits were suffering partially because of a strategy that sought to lure customers with cheap mortgages and high interest rates on savings accounts.
To maintain profit margins on the mortgages it sells, the bank decided in early 2007 to stop using mortgage brokers, a move that has cost it market share.
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"Residential mortgage growth (down 2 per cent year-over-year) remains below average," RBC Dominion Securities Inc. analyst Andre-Philippe Hardy said in a note to clients yesterday. BMO's mortgage market share fell further to 9.2 per cent in the latest quarter, from 9.3 per cent in the prior quarter and 9.9 per cent a year ago, he added.
"We're looking for ways to grow the business," Mr. Techar said yesterday. The bank has been building up its sales force of mobile mortgage specialists, and yesterday it announced a new, cheaper, mortgage product.
"It's the lowest rate in the market for a five-year fixed closed mortgage, at 3.75 per cent, but it also requires the borrower to sign up for an amortization period of 25 years or less, and we think that's prudent in today's economy when there's still uncertainty," Mr. Techar said.
The new rate comes a short time after Ottawa said it is seeking to ensure that Canadian mortgage borrowers don't get in over their heads by imposing new rules on how banks determine whether a customer qualifies for a mortgage.
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"We tried to balance our support of the government's policy with our need to support our own brand promise to our customers with a product that was very attractive," Mr. Techar said. "We knew we had to improve on our offers. And this was the first fantastic offer that we've come up with."
While BMO set aside more money this quarter for troubled loans to Canadian consumers, Mr. Techar said he's confident that the losses will soon begin to decline.
The bank's insurance and wealth management businesses both posted significant increases in profits, while earnings from their investment dealer came in at $248-million, up 40 per cent from a year ago. BMO chief executive officer Bill Downe noted the capital markets profits came in shy of those in recent quarters, and said that those prior quarters had benefited from hefty trading revenue. Bank of Montreal (BMO)
Close: $58.85, up $2.21.