Noah Zivitz

Managing Editor, BNN Bloomberg

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Bank of Montreal has made it a clean sweep for Canada's Big Six lenders in dishing out dividend hikes and share buybacks.

BMO announced Friday morning that it will seek regulatory approval to repurchase up to 22.5 million of its common shares. It also said its board approved a 25-per cent boost to the quarterly dividend, which will lift it to $1.33 per share, effective with the payment scheduled for Feb. 28. 

The flurry of moves by banks this week to share their wealth with investors was anticipated after the Office of the Superintendent of Financial Institutions ended its ban on share buybacks and dividend hikes on Nov. 4. 

The regulator imposed that prohibition in March 2020 as it sought to shield Canada's financial system from a feared surge in loan defaults during the COVID-19 pandemic. However, that onslaught of sour loans never materialized as extraordinary measures were introduced by the banks and federal government to support individuals and businesses. 

BMO also posted a 52 per cent surge in annual profit on Friday, as net income for the fiscal year ending Oct. 31 rose to $7.75 billion from $5.10 billion in 2020. In the fiscal fourth quarter, BMO earned $2.16 billion, up 36 per cent from a year earlier amid growth in all of its major divisions and improved credit quality. Indeed, $126 million was freed up from funds that were previously set aside as loan-loss provisions. In the prior quarter, BMO released $70 million from its provisions. 

On an adjusted basis, the fiscal fourth-quarter profit worked out to $3.33 per share; analysts, on average, were expecting $3.21. 

“A modest beat for BMO in the quarter but the key focus will be the relative return of capital, with BMO announcing both the largest increase to its dividend and the largest share repurchase program. That said, earnings were fine, if unspectacular,” said Barclays Capital Analyst John Aiken in a report to clients. 

The primary fourth-quarter profit contributor was BMO’s core Canadian personal and commercial banking business, where net income jumped 42 per cent year-over-year to $921 million despite an uptick in expenses. The division’s revenue rose 13 per cent year-over-year, and its average residential mortgage book expanded a little more than nine per cent to $115.9 billion. 

The profit growth was even more substantial south of the border, where BMO’s personal and commercial banking unit saw its net income jump 66 per cent year-over-year to US$408 million as its lending activity with business clients picked up and net interest income (the difference between what a bank generates from interest on loans and what it pays on deposits) rose to US$856 million from US$800 million a year earlier. 

Meanwhile, BMO’s capital markets unit saw profit rise 41 per cent to $536 million and net income from wealth management activity rose 15 per cent to $369 million. 

“Looking ahead to 2022, we will continue to position BMO for growth with the ensuing economic recovery. We are making targeted investments in technology and talent to drive enhanced customer experiences and deliver market-leading advice to help them make real financial progress,” said BMO Chief Executive Officer Darryl White in a release.