Blackmont Analyst on Bank of Montreal: Don't Rule Out Additional Losses

Aug.29.07 | About: Bank of (BMO)

Bank of Montreal (NYSE:BMO) continues to feel the strain of natural gas trading losses that first came to light earlier this year, with profits suffering as the bank unwinds its troublesome book of commodities trades.

“BMO reported normalized cash earnings per share of C$1.30, flat with prior year and C$0.13 below our expectations,” wrote Blackmont Capital analyst Brad Smith. Revenue of C$2.6-billion also fell C$100-million short of Mr. Smith’s forecast.

“Both the earnings and revenue shortfalls resulted from the incurrence of an additional C$97-million of commodity trading losses,” Mr.Smith said. “The trade position unwinding process is expected to continue for two more quarters. Additional losses cannot be ruled out.”

Profits for the third quarter were C$660-million, 7% or C$50-million down from C$710-million last year.

Excluding the impact of the trading losses, earnings per share would have been C$1.38. That’s still below the Blackmont analyst’s forecast – Mr. Smith blames the shortfall on “weaker interest margins and higher than expected operating expenses.”

He maintains his 12-month target price of C$72.00 for BMO’s stock and leaves his “hold” recommendation unchanged.

BMO 1-yr chart: