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WRAPUP 1-BMO earnings smash market forecasts, Scotiabank in line

Published 2017-02-28, 01:02 p/m
© Reuters.  WRAPUP 1-BMO earnings smash market forecasts, Scotiabank in line
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* BMO Q1 EPS C$2.28 before items vs forecast C$1.88

* BMO improves core tier 1 ratio by 100 basis points

* Scotiabank Q1 EPS C$1.58 vs forecast C$1.57

* Scotiabank Q1 net income C$2 billion vs C$1.8 bln

* BMO shares up 2.3 percent; Scotiabank down 1.6 pct

By Matt Scuffham

TORONTO, Feb 28 (Reuters) - Bank of Montreal BMO.TO , Canada's fourth-biggest lender, on Tuesday reported first-quarter results which smashed market expectations, but rival Bank of Nova Scotia BNS.TO disappointed some analysts with numbers that were broadly in line with forecasts.

BMO shares rose 2.3 percent, on track for their strongest daily gain in nearly three months, after it reported net income of C$1.5 billion ($1.1 billion) That was up from C$1.1 billion the year before in the quarter ending Jan. 31.

Earnings per share, excluding one-off items, for the bank, Canada's fourth largest, came in at C$2.28 per share, beating the average forecast by analysts of C$1.88, according to Thomson Reuters I/B/E/S data.

Scotiabank's shares fell 1.6 percent after the bank, Canada's third largest, said net income in the first quarter to Jan. 31 was C$2 billion ($1.5 billion) compared with C$1.8 billion the year before. Earnings per share rose to C$1.58 from C$1.44 the year before.

Average forecast earnings per share of C$1.57, according to Thomson Reuters I/B/E/S data.

BMO also said its stronger capital position enabled it to announce plans to buy back 15 million of its common shares, the equivalent of 2.3 percent of its publicly traded stock, as a means of returning capital to shareholders.

It said its core tier 1 capital ratio, a key measure of its financial strength, increased by 100 basis points during the quarter to 11.1 percent marking a recovery after the bank revealed last November that it had mistakenly overstated the ratio in the first three quarters of 2016.

The bank said then that its core tier 1 ratio was 10.0 percent at the end of last August, not the 10.5 percent initially reported, the weakest of any major Canadian bank.

Analysts said that the bank's improved capital position could help restore the confidence of some investors who were spooked by last year's error.

"We believe that the repairs done to its capital ratio will remove a significant overhang," said Barclays (LON:BARC) analyst John Aiken.

In the first quarter, BMO benefited from particularly strong performances from its Canadian retail, wealth management and capital markets businesses.

Net income at its Canadian retail business rose by 40 percent to C$743 million, wealth management net income grew by 81 percent to C$266 million and capital markets net income was up 46 percent to C$376 million.

Commenting on Scotiabank's results, Barclays' Aiken said that earnings were boosted by a gain of around C$40 million on the sale of real estate in Canada and an unquantified gain on an investment in Colombia.

"Therefore, the view of earnings is either C$1.55 or a low quality C$1.58 and will likely be viewed disappointing against consensus (and our) forecast of C$1.57," he said.

RBC Capital Markets analyst Darko Mihelic said he viewed the results as "mildly negative."

"Even assuming that the market interprets Scotiabank's earnings as C$1.58 per shares -- this would be close to in line with consensus whereas other banks beat consensus estimates handily," he said.

($1 = 1.3210 Canadian dollars)

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