Bank of Montreal $63 – Toronto symbol BMO

BANK OF MONTREAL $63 (Toronto symbol BMO; SI Rating: Above average) is the fourthlargest Canadian bank, with assets of $297.5 billion. The bank earned $1.27 a share (total $657 million) in its fourth fiscal quarter ended October 31, 2005, up 19.8% from $1.06 ($551 million) a year earlier.

The latest results include $43 million in one-time gains from the sale of its U.S. online banking business and other assets; the year-earlier period includes $24 million in non-recurring gains. Revenue in the quarter rose 15.2%, to $2.65 billion from $2.3 billion. Strong gains from Canadian operations offset slower growth in the U.S.

Bank of Montreal is doing a good job selling investment products and other services to its retail banking customers. However, the bank is recovering fewer loans that it had already written off in prior years. It set aside $57 million for loan losses in the fourth quarter; a year earlier, it cut its total loan loss provisions by $13 million. Although provisions will probably rise in the next year, they’re still well below the peak of the first two years of this decade.

Bank of Montreal has gained roughly 15% in the past year. As one of the two smallest banks in the industry, it is a more likely takeover target when Ottawa lifts its ban on bank mergers. It now trades at 13.2 times its fiscal 2006 earnings forecast of $4.78 a share. The $1.96 dividend yields 3.1%.

Bank of Montreal is a buy.

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