Canada’s BMO, Scotiabank miss profit estimates on higher provisions, weakness at home

(Reuters) – Bank of Montreal and Bank of Nova Scotia on Wednesday reported smaller-than-expected profit for the second quarter, due to higher expenses and as the Canadian banks were forced to set aside more rainy day funds amid an uncertain banking environment.

The results come as investor confidence deteriorates in markets amid high volatility triggered by a relentless rate-hiking cycle and the banking crisis in the United States, which began in March following the collapse of Silicon Valley Bank and led to the fall of a handful of U.S. regional banks.

Both banks reported lower earnings at home, which accounts for a major chunk of their earnings. Adjusted income from Scotiabank’s Canadian banking segment fell 10% while that of BMO’s fell 8%, reflecting higher provisions for credit losses.

“In Canada, mortgages are a big portion of the book and housing has slowed immensely and that’s impacting the overall growth of the Canadian banks,” Canaccord Genuity analyst Scott Chan said.

In a report earlier this month the Bank of Canada said it was more concerned than it was last year about households being able to pay off their debts and was seeing signs of financial stress among some home buyers.

About a third of mortgage holders saw an increase in payments compared with February 2022, just before borrowing costs started to rise. By the end of 2026, almost all mortgage holders will face higher payments, the bank said, as homeowners renew deals.

Scotiabank’s international business was a bright spot, growing 6% on an adjusted basis, largely helped by currency fluctuations.

BMO’s net income, excluding one-off items, rose to C$2.22 billion ($1.65 billion), or C$2.93 per share, for the three months ended April 30, compared with C$2.19 billion, or C$3.23 a share. Analysts were expecting C$3.19 per share, according to Refinitiv data.

“A disappointing quarter at first look, which was also a bit messy with the inclusion of Bank of the West,” KBW analyst Mike Rizvanovic said.

For Scotiabank, it fell to C$2.17 billion ($1.62 billion), or C$1.7 a share, from C$2.77 billion, or C$2.18 a share, a year earlier. Analysts had forecast C$1.78 per share.

($1 = 1.3372 Canadian dollars)