For the third quarter ended July 31, 2008, BMO Financial Group reported net income of $521 million or $0.98 per share. We continue to maintain a strong Tier 1 Capital Ratio and the third quarter return on equity at 13.5% shows the underlying benefits of our diversified businesses.
"We remain focused on our strategic goals and objectives with the customer at the centre of everything we do. This is reflected in the overall results we've reported and our market share gains in the P&C Canada business. The impact of the deterioration in the U.S. housing market has affected our results and while uncertainty exists, we are confident in the earnings capacity of the core franchise," said Bill Downe, President and Chief Executive Officer, BMO Financial Group.
P&C Canada, our Canadian personal and commercial banking unit, again reported good results with one of its best quarters ever. Results were down year over year but net income improved slightly after adjusting for a recovery of prior years' income taxes in 2007, and net income was up $12 million or 3.4% from the second quarter with revenue growth of 5.9%. "We are steadily improving P&C Canada's market share in both personal and commercial loans. Our focus on the customer is increasingly becoming entrenched in the organization and is paying off. Customer loyalty continues to improve, our customer base is growing and we are strengthening our customer relationships," said Mr. Downe.
"Results in our U.S. personal and commercial banking group were good, with net income growing 12% year over year in source currency, driven by increased volumes, spreads and fees. Net interest margins improved from the second quarter and are showing early signs of stabilizing, an encouraging development given the margin pressures of the past. We expect to complete the bulk of the integration of the Wisconsin-based banks in the fourth quarter.
"Private Client Group delivered record net income, achieving broad-based revenue growth in a difficult market environment.
"Results in BMO Capital Markets were up year over year but continue to reflect current market conditions with low activity levels in some of our investment banking businesses. Our interest-rate-sensitive businesses performed well," Mr. Downe added. The group's results included after-tax charges related to the current capital markets environment and severance, as well as the benefit of a recovery of prior period income taxes. Further detail is provided in the Effects of the Capital Markets Environment on Third Quarter Results section.
"Overall, BMO's revenue increased 7.5% year over year, reflecting growth in our businesses and the impacts of this quarter's charges related to the capital markets environment and last year's commodities losses. Expenses increased at a comparable rate, reflecting the impact of investments in our business, severance and low capital taxes a year ago. Managing expenses while investing in future growth will continue to be a priority," said Mr. Downe.
Provisions for credit losses totalled $484 million including a $50 million increase in the general allowance. Specific provisions of $434 million were unusually elevated relative to the prior quarter due to the inclusion of $247 million for two corporate accounts related to the U.S. housing market that were identified as impaired in the first half of the current year. The size of the provisions for these two exposures reflects the weakness in the U.S. residential real estate market and the specific nature of the underlying loans. Excluding the provisions taken on these two accounts, specific provisions were $187 million in the quarter.
The effective tax rate in the quarter was a recovery of 12.2%, and included the benefit of $95 million of recoveries of prior period income taxes. -- www.cnxmarketlink.com
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