By James Langton

(February 27 – 10:20 ET) – Bank of Montreal disappointed analysts with its first quarter earnings release this morning.

BMO reported net income of $416 million for the quarter ended January 31,down from $474 million in the first quarter 2000. Excluding non-recurring items in each period, net income for the first quarter 2001 was $403 million compared with $407 million in the same period last year.

EPS fell 20¢ to $1.45, and below analyst estimates of $1.50. Return on equity also slipped to 15.3% from 19%. Total revenues grew to $2.2 billion, up just $70 million, slower than expected. Expenses grew by 11.4%.

While admitting the results were disappointing BMO confirms its expectations for the year. “Throughout the first quarter, the bank continued to accelerate the shift of its business mix toward high-growth, high-return businesses,” said Tony Comper, chairman and CEO. “While the results for the quarter were mixed, we remain committed to our enterprise targets for fiscal 2001. And we are on track to achieving the targets for the year.”

The bank also blamed the results on new accounting requirements of the Canadian Institute of Chartered Accountants covering pensions and other future employee benefits, and governing the computation of earnings per share. These changes lowered diluted earnings by 7¢ per share in the first quarter of 2001.

Moving to the cost basis of accounting from the equity basis of accounting for the bank’s investment in Bancomer also cut 12¢. During the quarter the bank sold 200 million Bancomer shares and reached an agreement to sell most of its remaining shares by the end of fiscal 2002.

Investment Banking net income reached $169 million, an increase of $20 million or 13.8% from the first quarter of 2000; reflecting improved results from capital market businesses due to higher client-driven trading revenue.

The Personal and Commercial Client Group was flat, with modest revenue growth offset by higher spending. Net income from the Private Client Group declined to $31 million from $48 million in the first quarter of fiscal 2000, and down $4 million from the fourth quarter. The drop was due to lower client transaction trading revenues associated with weaker market conditions, with full-service and discount brokerage both suffering, and due to higher expenses from strategic investments.

The bank has boosted average capital invested in the Private Client Group by 37.4% over the fiscal 2000 average, while capital invested in the Personal and Commercial Client Group was up 4.3%. The Investment Banking Group’s capital levels were largely unchanged.

Despite the first quarter, the bank says it remains committed to its fiscal 2001 targets and is on track to achieving them. Targets for fiscal 2001 include a ROE of 17% to 17.5% and revenue growth of 7% to 9%.