Bank of Montreal Earnings: An Early Look

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Bank of Montreal (NYSE: BMO  ) is about to release its quarterly earnings. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Canadian banks have held up a lot better than their U.S. counterparts over the years, as differences in the way the mortgage industry works in Canada left Bank of Montreal and its peers with less exposure to the impact of falling home prices. But with real-estate market conditions looking frothy in the Great White North, could the banking industry be vulnerable? Let's take an early look at what's been happening with Bank of Montreal over the past quarter and what we're likely to see in its quarterly report on Tuesday.

Stats on Bank of Montreal

Analyst EPS Estimate

$1.46

Change From Year-Ago EPS

2.8%

Revenue Estimate

$3.97 billion

Change From Year-Ago Revenue

(3.6%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Bank of Montreal keep moving north this quarter?
Analysts haven't been entirely secure with their estimates on Bank of Montreal in recent months, with analysts clipping $0.02 per share off their consensus for the just-ended quarter. But shareholders have benefited from an almost 6% rise in the stock price since mid-November.

Bank of Montreal and its Canadian peers have delivered extremely strong results over the past year. With healthy borrowing activity and relative strength in Canada's resource-based economy, the banking sector hasn't seen much pressure and has generally capitalized on good conditions.

But recently, warning signs have popped up that are affecting the entire Canadian banking industry. A recent downgrade from one credit-rating agency hit not only Bank of Montreal but also Toronto-Dominion (NYSE: TD  ) , Bank of Nova Scotia (NYSE: BNS  ) , and Royal Bank of Canada (NYSE: RY  ) as well. The report noted that with household debt rising to its highest level in the country's history, credit quality is deteriorating and will present a challenge to banks' risk management in the years ahead.

Moreover, with Bank of Montreal having joined Toronto-Dominion and RBC in pursuing business opportunities in the U.S. through its 2011 purchase of Marshall & Ilsley, increased U.S. regulation of foreign banks could hamper their respective expansion plans. Bank of Montreal might have to raise more capital to make regulators happy.

In its quarterly report, look especially at Bank of Montreal's Capital Markets division. Investment-related activity has been important for the bank in recent quarters, and any sign of weaker results there could be a potential danger sign. Overall, though, Bank of Montreal looks like a smart way to play the strength of the Canadian banking industry.

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