The Bank of Montreal is optimistic that the Canadian economy is poised for a better year ahead, even as the bank reported disappointing financial results in an operating environment that the bank's chief executive described as "unsettled."
BMO kicked off the start of first-quarter reporting season for the Big Six Canadian banks with declining earnings that fell shy of analysts' expectations, underscoring concerns about the impact of sharply lower oil prices, falling interest rates and a slowing domestic economy.
Yet Bill Downe, BMO's chief executive, said that some of the difficult operating conditions should set the mood for a better year ahead.
"With a more competitive Canadian dollar and lower energy costs and a faster-growing U.S. economy, our biggest market, I have an encouraging view on the potential for job creation in the manufacturing and service sector of the economy," he said.
He described the Bank of Canada's decision in January to cut its overnight interest rate as a move that "put some insurance into the Canadian economy."
He is even upbeat on the Canadian energy sector and its impact beyond Alberta: "I know that the oil and gas sector can make a pretty rapid adjustment to its cost structure," he said. "And while production levels are important, I think the Ontario economy and the Quebec economy have the opportunity to accelerate nicely here."
Investors took a more skeptical view, sending BMO's shares down 2 per cent, to $75.83, and reinforcing a gloomy start to the year for bank stocks.
Most other bank stocks also fell, implying that investors see BMO's results as a harbinger for the broader sector as low interest rates squeeze the income generated on loans, the sharp drop in the price of oil weighs on activity in capital markets and tapped-out consumers assess their appetite for debt amid a slowing economy.
The bank reported net income of $1-billion in the first quarter of 2015, down 6 per cent from last year. On a per-share basis, net earnings declined to $1.46, down 8 per cent. They missed analysts' expectations by more than 12 cents a share.
"Overall, we have a negative view on the quarter," said Darko Mihelic, an analyst at RBC Dominion Securities, in a note.
While BMO reported that its revenues during the quarter rose above $5-billion, up nearly 13 per cent from last year, key measures of profitability declined.
Return on equity, for example, retreated to 11.8 per cent, down from 14.2 per cent last year and well below the bank's target of 15 per cent.
Still, the first quarter showed some encouraging areas for BMO that support its long-term strategy of expanding beyond Canada. It acquired Britian-based F&C Asset Management in 2014, after its $4.1-billion (U.S.) deal for U.S.-based Marshall & Ilsley Corp. in 2010.
Net income from its U.S. personal and commercial banking operations rose 15 per cent over last year.
"In the context of a still-strengthening U.S. economy, the benefits of our U.S. footprint are becoming increasingly apparent," Mr. Downe said on a conference call with analysts.
In the bank's wealth-management division, assets under management surged 43 per cent, to $852-billion. After excluding the impact of the F&C acquisition, assets still grew an impressive 18 per cent from the impact of the stronger U.S. dollar, an ongoing bull market in stocks and the attraction of new clients.
Mr. Downe said that the bank will keep a close eye on its expenses, but suggested that the frugality doesn't need to include job cuts.
"I characterize it as belt-tightening," he said. "You look at new hiring with an extra amount of deliberation. We are continuing to invest in all of the businesses, and we think we can make the same progress without adding more people at the margin."
Royal Bank of Canada and National Bank of Canada report their results on Wednesday.