Expect Further Decreases in Consensus Estimates for Bank of Montreal

While the Bank of Montreal’s (BMO) first quarter earnings of C$1.25 per share were well ahead of consensus expectations of C$1.18 and C$1.10 at Dundee Securities, the bank did not meet consensus on a core basis.

Analyst John Aiken noted that while a one-time recovery in its capital markets division added C$0.06 per share and BMO’s tax rate was unusually low at 16.3%, core earnings in the quarter were below expectations at between C$1.10 and C$1.14.

Its provisions were also below guidance of C$170-million at C$151-million in the quarter. BMO also provided more guidance on this and cited continued deterioration in U.S. residential real estate, stating that “the balance of the year will be higher than in the first quarter,” he told clients.

As a result of this guidance and the surprisingly high levels with its first quarter results, Mr. Aiken expects further decreases in consensus estimates for BMO. And since it is traditionally the “low provision bank,” Mr. Aiken expects other banks will face earnings headwinds in coming quarters on deteriorating credit and higher provisions.

He rates BMO a “sell” with a C$45 price target.