BANK OF MONTREAL $57 (Toronto symbol BMO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 498.6 million; Market cap: $28.4 billion; SI Rating: Above average) is the fourth-largest Canadian bank, with $366.5 billion in assets.
Bank of Montreal owns Harris Bank, a major bank in Chicago. Harris’s conservative lending policies have limited Bank of Montreal’s exposure to the problems in the U.S. mortgage market. However, Bank of Montreal still had to write down the value of asset-backed securities it holds by $211 million (after-tax) in fiscal 2007.
Another problem for Bank of Montreal is its commodity trading operations, which lost $440 million (after-tax) on natural gas futures contracts. The bank is making progress cutting the risk of its trading operations, but further losses are possible.
If you exclude unusual charges, Bank of Montreal’s earnings in fiscal 2007 rose 10.8%, to $5.66 a share (total $2.9 billion) from $5.11 a share ($2.6 billion) in the prior year. Revenue rose 5.9%, to $10.7 billion from $10.1 billion.
Despite rising credit concerns, bad loans fell to 0.51% of total loans in 2007 from 0.54% in 2006. The bank’s recent restructuring of its branch operations is also paying off. Its efficiency ratio improved to 61.3% from 62.8%.
Bank of Montreal should earn $5.92 a share in fiscal 2008, and the stock trades at 9.5 times that estimate. The $2.80 dividend yields 5.0%.
Bank of Montreal is a buy.
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