Magazine article American Banker

U.S. Expansion Cost Trims Earnings at Bank of Montreal

Magazine article American Banker

U.S. Expansion Cost Trims Earnings at Bank of Montreal

Article excerpt

Rising expenses from its U.S. expansion and the consequent profit declines in retail and investment banking crimped earnings during Bank of Montreal's fiscal second quarter, the company said Wednesday.

U.S. operations contributed 17.4% of the Toronto company's overall earnings of nearly $577 million for the period ended April 30, down from from 21.6% a year earlier and 20.9% in the fiscal first quarter.

Executives at the $279.8 billion-asset Bank of Montreal have repeatedly vowed to expand its Chicago-based retail banking franchise Harris Bancorp Inc. through acquisitions and branch-building.

Harris added one branch in its second quarter and 10 in the 12 months through April 30, and it opened its 200th branch on May 2. The Chicago subsidiary wants to add another 20 this year and plans to double its branch network within five years.

It is also upgrading its branch technology after announcing plans last year to consolidate its 26 charters. But the costs of these activities weighed on Harris' earnings despite robust loan growth. Harris' profit fell 7.7% from a year earlier, to $24 million, as expenses rose faster than revenues.

Expenses rose 10.9% from a year earlier and from the first quarter, to $153 million, but revenues grew only 7.5% from a year earlier and 3.1% from the previous quarter, to $200 million.

"This quarter, obviously, is one that does not look great," said Harris chief executive Frank Techar during a conference call with investors. The current quarter will again be affected by higher expenses, he said, but costs will return to a more normal level in the next fiscal year. "Revenue is going to go in the right direction," he added.

Brenda Lum, an analyst at Dominion Bond Rating Service Ltd. in Toronto, said the cost increase was not unreasonable given Harris' expansion. …

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