Bank of Montreal Results: Weak Domestic Banking

The trend of disappointing income growth from Canadian banking operations continues.

| More on:
The Motley Fool

It was BMO’s (TSX:BMO,NYSE:BMO) turn to report this morning and based on the stock’s performance thus far, down 2.4%, the market didn’t like what it saw.

Adjusted EPS of $1.46 in the quarter was less than the consensus bet of $1.49/share, but perhaps more troubling was the continuation of the domestic slowdown theme that we have noted in both TD’s and Scotia’s reports.

Canadian retail banking revenues were flat year over year, but income growth was in fact negative.  The table below summarizes the income growth trajectory for the bank’s Canadian P+C business.



YoY Change


QoQ Change







This slowdown in domestic banking is having an impact on the bank’s return on equity (ROE).  This metric stood at 14.5% at the end of Q2/13, down from 15.4% at this time last year.

Over the past 10 years, BMO’s quarterly ROE has averaged 15.5%, but has been as high as 21%.  The erosion in this metric that has occurred, especially given the reasonable economic times that we’re in, is somewhat troubling.

Foolish Takeaway

Given today’s slide, BMO trades at a Price/Book multiple of 1.5.  Its 10 year average is 1.9.  With an ROE that is just 6% below its 10 year average, and a P/B multiple that’s more than 20% below its long-term average, it can be argued that downside in BMO’s stock is potentially limited.  However, multiple expansion can’t be expected until earnings growth resumes.  Therefore, upside is probably limited as well.  This story holds for most of the Canadian banks.

Because of their significant weight in the S&P/TSX Composite Index, a lack of capital appreciation from the banks means the Canadian market could be stalled, making passive Canadian index investors vulnerable to disappointing returns in the coming years.

We have prepared a Special FREE Report that will clue you into the perils of investing in the Canadian index and suggests an easy to implement alternative strategy.  It’s called “5 Stocks That Should Replace Your Canadian Index Fund” and you can receive a copy at no charge – just by clicking here.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares of any of the companies mentioned at this time.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Canadian stocks are rising
Dividend Stocks

1 Dividend-Growth Stock You Won’t Want to Miss in the Real Estate Sector

A growth-oriented REIT is a strong buy today after raising its dividend by more than 5% in each of the…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

Retirement Investors: 3 TSX Stocks That Could Rally With the Economy 

Always buy stocks you are bullish on when they trade below their 52-week highs. A recovery rally can enhance your…

Read more »

some canadian stocks rose

3 Stocks I’ll Load Up on in 2023

Toronto-Dominion Bank (TSX:TD) is one stock I'll load up on in 2023. There are others, too.

Read more »

Dividend Stocks

Better Buy: Emera Stock vs. Hydro One

Higher-risk utility Emera should provide higher returns over the next five years, given the dip and its higher yield.

Read more »

Growing plant shoots on coins
Tech Stocks

3 Growth Stocks That Look Ready to Double in 1 Year

These three growth stocks are "sleeping giants" ready to blast off in 2023 and beyond for investors who pick them…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive-Income Hat Trick: 3 TSX Stocks to Buy for Monthly Cash

Investors seeking passive income can invest in these Canadian dividend stocks and earn attractive monthly passive income.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Get Passive Income of $435/Month With This TSX Stock

Here’s how dividend investing in Canada could help you get reliable monthly passive income.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

2 Undervalued Growth Stocks to Buy Right Now

Once a growth stock becomes too heavily discounted or undervalued, investors begin to wonder about its ability to bounce back,…

Read more »