BMO earns $1.1 billion, then slashes 2,300 jobs

Bank raises dividend and takes $357M charge as it lays off five per cent of its workforce

The Bank of Montreal announced Tuesday it would be laying off roughly 2,300 people as part of a cost-cutting drive after the bank earned $1.19 billion in its most recent quarter and raised its dividend.

A drop in quarterly earnings — from $1.7 billion in the same quarter a year ago — was caused largely by a $357-million restructuring charge, mostly for severance payments.

The cuts will affect about five per cent of Bank of Montreal’s workforce, executives said on a fiscal fourth-quarter conference call Tuesday.

“This is a sizable move,” chief executive officer Darryl White said on the call, while announcing earnings that beat analysts’ expectations. “We’re on a new path as far as a continuous improvement of the operating efficiency of the bank and this charge is designed to accelerate that path as we go forward.”

“I would expect the savings that we’ve talked about to flow through each of our businesses in a fairly representative way … both by operating group and by geography,” chief financial officer Tom Flynn told analysts on a conference call.

Based on the geographic breakdown of BMO’s workforce, the restructuring could affect roughly 1,500 jobs in Canada and 775 in the United States.

A spokesperson wasn’t able to say how many of the job losses would be in the Greater Toronto Area, instead pointing to the conference call.

The latest restructuring charge — which follows one taken in the second quarter of 2018, also tied to severances — included a small amount of real-estate related costs and is part of White’s efforts to improve productivity at what has been Canada’s least-efficient bank.

The company’s adjusted efficiency ratio, a measure of what it costs to produce a dollar of revenue, was 60 per cent in the fourth quarter, down from 62.2 per cent a year earlier, as the lender moves toward White’s target of 58 per cent or better by the end of fiscal 2021.

“It is difficult for us to credit good expense control in the face of yet another restructuring charge from this bank, this time approaching $500 million,” CIBC Capital Markets analyst Robert Sedran said in a note to clients. “However, the underlying segment performance was solid with improving volume growth, positive operating leverage and stable credit quality. A decent result.”

The job cuts are across all areas of the bank and are deeper than previous rounds of reductions, including the elimination of 1,850 jobs, or four per cent of the workforce, in May 2016, and the 1,000 positions that were cut in 2007.

The latest move comes about six months after the Torontobased company pared about 100 jobs across its capital-markets division.

The reductions surpass Bank of Nova Scotia’s 1,500 job cuts, announced in 2014, and the 1,660 positions eliminated by Royal Bank of Canada in 2004. Those were among the Canadian banking industry’s biggest cuts in the past two decades.

Bank of Montreal’s restructuring costs contributed to a 30 per cent decline in net income in the quarter, with the company posting earnings of $1.19 billion, or $1.78 a share. Adjusted per-share earnings were $2.43, beating the $2.41average estimate of14 analysts in a Bloomberg survey.

The bank raised its quarterly dividend 2.9 per cent to $1.06 a share.

Wealth management led profit growth in the quarter, with a 22 per cent increase in earnings from the year earlier, while Canadian and U.S. banking also gained. Earnings from the company’s BMO Capital Markets unit fell 9.7 per cent amid a tougher year for deal-making.

Also in the earnings announcement:

Wealth management had its best quarter for profit growth since last year, with earnings of $267 million, helping lift annual net income to $1.06 billion. The bank aims to get $2 billion in annual profit from wealth management by 2023;

Earnings from Canadian personal-and-commercial banking, Bank of Montreal’s biggest business, rose 6.2 per cent to $716 million;

In the U.S. banking division, which includes Chicago-based BMO Harris Bank, earnings climbed 5.6 per cent to $393 million in the quarter, even after the impact of Federal Reserve interest rate cuts;

Net interest margins in the U.S. division narrowed to 3.35 per cent, the lowest since at least 2010;

Earnings from BMO Capital Markets fell 9.7 per cent to $269 million on a decline in revenue from investment banking fees and trading.

Bank of Montreal’s restructuring costs contributed to a 30 per cent decline in net income