Severance costs hit BMO’s earnings
TORONTO Severance costs took a bite out of the Bank of Montreal’s second-quarter earnings, as the lender said it was trying to align its capital-markets business with current market conditions.
BMO announced its financial results for the three months ended April 30 on Wednesday, reporting a profit of nearly $1.5 billion, up 20 per cent from the same quarter last year. The bank’s adjusted earnings per share for its fiscal second quarter were $2.30, a five-per-cent increase over last year but two cents below analysts’ expectations.
Those earnings were weighed down by job cuts, as BMO’s quarterly results included a $120-million pre-tax severance expense for its investment-banking unit.
Darryl White, the bank’s chief executive, said BMO was taking “disciplined actions” to execute on its strategy and position itself for ongoing growth.
“For example, we’ve made organizational changes within our capital markets group to align resources with the revenue environment,” White said during a conference call Wednesday morning, adding that the severance cost had reduced adjusted earnings by 14 cents per share.
The number of full-time equivalent employees for the second quarter for BMO Capital Markets was 2,764, up slightly quarter-over-quarter and an increase of more than 200 jobs over the same period last year, according to the bank’s supplementary financial information.
Earlier media reports, however, indicated BMO had cut about 100 capital-markets jobs this month.
BMO’s chief financial officer Tom Flynn did not dispute what has been reported but said that the severance costs were “not really significant in the overall context” of the bank’s capital-markets business.
“And we do expect some meaningful expense savings to come from (the job cuts) over the second half of this year and into next year,” Flynn said.
Dan Barclay, head of BMO Capital Markets, said there had been no change in strategy and no closures of any businesses throughout the process. The efforts, Barclay said, are expected to translate into $40 million in savings this year and $80 million for 2020.
“The primary rationale was that we wanted to align our resources with the current market environment,” he said. “As you know, we’ve made a strong commitment to deliver on the operating leverage, and this is part of that program for us to deliver on that.”
BMO’s personal and commercial business in the U.S. was the standout performer for the bank’s second quarter, as profit from the unit rose 17 per cent over last year to $406 million. Net income from the bank’s Canadian P&C increased five per cent, to $615 million.