Scotiabank topped profit estimates last quarter while BMO missed. Here’s why – National

Canada’s Bank of Montreal on Tuesday reported quarterly profit below analysts’ estimates, its sixth miss in a row, hurt by weakness in its U.S. retail segment and as the lender made bigger than expected provisions for potential bad loans.

Meanwhile, peer Bank of Nova Scotia, Canada’s fourth largest bank by market capitalization, reported better than expected profit powered by strong growth at its businesses at home and overseas, which spans across North America, Latin America and the Caribbean.

Canadian banks have sought growth south of the border expanding through acquisitions or brick by brick as opportunities in a saturated and highly regulated market at home were limited.

BMO purchased U.S. regional lender Bank of the West for US$16.3 billion last year, giving it exposure to nearly two million customers, about 500 retail branches and commercial and wealth offices across the midwest and western United States.

Scotiabank looked further down, expanding in largely underbanked areas in South America and Latin America, focusing on the Pacific Alliance trade bloc.

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The lender is now focusing on the US$1.6 trillion North American trade, concentrating on Mexico, and U.S. Most recently, Scotiabank invested $2.8 billion in U.S. regional bank KeyCorp, its first exposure to the region.

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But BMO and other Canadian banks that have a U.S. presence have faced many challenges in a competitive U.S. banking market, forcing them to spend more to retain deposits and boost loan growth.

Analysts also noted two independent customers, one in the U.S. and one recorded under its Capital Markets business, created roughly nine basis points of impaired provisions for BMO.

“The weakness was widespread with all segments showing some deterioration,” TD Securities analyst Mario Mendonca said in a note. He expects loan loss provisions to remain elevated in the fourth quarter and easing in 2025 as rates fall.

A higher-for-longer interest rate environment has increased the risk of consumers and businesses falling behind on their loan repayments, nudging lenders to set aside more rainy-day funds.

BMO, Canada’s third-largest lender, said provision for credit losses jumped to $906 million in the third quarter, from $492 million a year earlier. Analysts were expecting $734 million, according to LSEG data.

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Adjusted net income at its U.S. personal and commercial banking segment fell seven per cent, while earnings from its business at home rose three per cent, helped by higher margins. Adjusted net income fell to $1.98 billion, a 7.8 per cent decline from a year earlier.

BMO earned $2.64 per share, compared with analysts’ expectations of $2.76.

Scotiabank booked a 0.7 per cent fall in adjusted income to $2.19 billion and earned $1.63 per share, one Canadian cent more than estimates.