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By Andrew Willis

Bank of Montreal (NYSE:BMO) seems to be keeping a lid on bonus payments to its employees, a move that’s likely to play well with shareholders, but poorly with investment bankers.

The first of Canada’s big banks to report fourth quarter numbers, Bank of Montreal rode an upswing in retail banking and strong capital markets performance to better-than-expected results. In the final three months of the year, Bank of Montreal posted net income of $647 million, up 16% from the same quarter in 2008.

What does that mean for employees? That’s still not clear. Bonus checks have yet to be handed out - employees get the news over the next three weeks. But Bank of Montreal did explain how much has been set aside, bank-wide, for performance-based compensation.

There is $1.34 billion in the BMO bonus pool for 2009, up just 3% from $1.29 billion in 2008. Again, that is a bank-wide number. We don’t know how senior brass plan to split the pie among various departments.

But a single-digit increase in bonus payments would not and should not sit well with professionals at BMO Nesbitt Burns, the investment dealer arm of the bank. This group shot the lights out in 2009, as did peers at the other bank-owned dealers. Profits from capital markets activity at Bank of Montreal were up 49% to $1.06 billion, from $711 million in 2008.

That 49% rise in profit would seem to justify a double-digit increase in bonus payments to investment bank professionals, who made more money last year, yet took less risk, according to chief executive officer Tom Milroy’s remark's Tuesday to analysts.

Now, we could be reading the tea leaves incorrectly. Bank of Montreal chief financial officer Russ Robertson stressed in his presentation to analysts on Tuesday that performance-based compensation rose in step with increased revenue. That bodes well for investment banking employees.

For the bank as a whole, 2009 results were not as strong as what the bank made last year, as net income was $1.79 billion, compared with $1.98 billion a year ago. So the investment bankers could be receiving more of that performance-based comp, because they work at the unit that out-performed.

But the first read on Bank of Montreal’s numbers - a 3% rise in variable pay after a 49% in capital markets’ profit - is an ominous sign for the Street.

Source: Bank of Montreal: Playing Tight with Performance Bonuses