Bank of Montreal’s stock was downgraded by an influential Bay Street analyst on concern the lender is building up credit losses at a faster pace than its U.S. peers.
A Bank of Montreal building in the financial district of Toronto, Ontario, Canada . Photographer: Chloe Ellingson/Bloomberg --
Bank of Montreal has posted two quarters of disappointing financial results as it set aside more money for potentially bad loans than analysts had forecast and signaled that provisions for credit losses could remain high for the rest of the year. The lender acquired San Francisco-based Bank of the West last year, significantly increasing its U.S. footprint — as well as its exposure to credit losses south of the border.
Mihelic changed his view on the stock after taking a “deep dive” into BMO’s credit compared to U.S. banks that have reported second-quarter earnings. He said he found that the Canadian bank’s provisions for potential credit losses as well as already non-performing loans are rising at a faster pace.Large provisions loom
Bank of Montreal already took several hits related to “idiosyncratic” items in the first and second quarters, Mihelic wrote, adding that it’s likely to record a one-time impact in the third quarter tied to loans of US$100 million made to SunPower Corp., which is under severe financial distress.
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