BMO profit rises while crude woes hurt loans

Credit issues connected to oil and gas companies have been manageable so far

The Bank of Montreal saw its firstquarter profit rise 7 per cent to $1.07 billion, even as its loan books felt some of the impact of lagging energy prices.

“We expected an increase in impaired loans in the oil and gas franchise in particular and we saw that, but it certainly wasn’t a disaster,” Edward Jones analyst Jim Shanahan said after BMO issued the results Tuesday.

Analysts have been predicting that the dramatic decline in the price of crude would lead to higher loan losses for the banks.

But, so far, any credit issues that have surfaced in the lenders’ loan books have been mild and manageable.

On the consumer side, Shanahan said, Canadian borrowers have proven to be more resilient than many analysts had predicted.

“Despite what appears to be a very difficult environment, particularly in Alberta, Saskatchewan, Manitoba — where unemployment rates are near 10- or 20-year highs — Canadians are continuing to pay their bills,” Shanahan said.

Meanwhile, loans to oil-and-gas companies that are unlikely to be repaid in full hit $162 million during the quarter — up nearly 60 per cent from the previous quarter.

However, despite the uptick, Barclays analyst John Aiken said impaired loans to the energy sector are modest, representing only 2.2 per cent of the bank’s oil and gas loans.

“While weakness continues to permeate through BMO’s energy portfolio, it is still not showing any cracks,” Aiken said in a note. BMO’s Canadian personal and commercial banking business saw its profits climb by 5 per cent from a year ago to $529 million, despite the sluggish domestic economy and continued warnings that debt-laden borrowers have started to tap out.

South of the border, the bank benefited from the purchase of General Electric Co.’s transportation-finance business. BMO’s U.S. personal and commercial banking division increased its net income by 31 per cent to $251million.

Meanwhile, weak market conditions caused net income at BMO’s wealth management division to slip roughly 7 per cent to $148 million, from $159 million a year ago.

“Our results this quarter reinforce our confidence that successfully executing on our strategy will enable us to meet customers’ changing expectations and continue to perform well in an unsettled environment,” BMO’s chief executive Bill Downe said in a statement.