BMO said adjusted net income at its capital markets segment rose 45% in the third quarter ended July 31, reflecting higher fee income and lower loan loss provisions. Adjusted net income at its U.S. banking business rose 11%, and Canadian personal and commercial banking grew 15%.
The banks are benefiting from reserves built up over the past year to guard against potential loan defaults, as credit losses have remained manageable while macroeconomic uncertainty fueled by the conflict in the Middle East has kept financial markets volatile. Meanwhile, the Canadian economy has shown signs that it is coping with U.S. tariffs and international tensions, adding far more jobs in July than expected with the unemployment rate dropping to a two-year low.
The Canadian banks have outperformed the broader Toronto index so far this year, trading at historically rich valuations. Analysts have raised questions about whether future earnings growth can justify those premiums, raising the expectation for banks to deliver solid earnings.
"The expectation is that a lot of the loan loss provision that the banks have taken on over the last few years can be released (back into the income statement) as delinquencies and loan losses come in better than expected," said Philip Petursson, chief investment strategist at IG Wealth Management. "That would be my expectation for the remainder of the year and into 2027."
On Tuesday, BMO shares were up 0.8% in early trading. They have gained 34% so far this year. Scotiabank's shares, which have gained 18.8% this year, were up 3%.
BMO reported adjusted earnings of C$3.96 per share, beating the estimate of C$3.76, according to LSEG data. Scotiabank’s adjusted profit of C$2.28 per share was also above the estimate of C$2.10.
($1 = 1.3861 Canadian dollars)
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