BMO: Wealth management hits record as insurance declines

By Aurélia Morvan | February 26 2021 04:29PM

Darryl White

Despite a decline in its insurance business, BMO Financial Group had“a very strong start to the year,” says CEO Darryl White.  

The company reports net income of $2 billion for first quarter 2021, which ran from Nov. 1, 2020 to Jan. 31, 2021. This figure represents growth of 26.7 per cent or $425 million over the net income of $1.6 billion reported in the first quarter of 2020.  

The increase in net income “was driven by net revenue growth of 6 per cent, with increases across all operating groups, a decrease in expenses and lower provisions for credit losses,” BMO explains.  

Wealth management up, insurance down 

Looking at the results in closer detail, four of BMO's lines of businesses grew in the first quarter of 2021, including BMO Wealth Management.  

This sector recorded a net profit of $358 million, up from $291 million in Q1 2020. This increase of 23 per cent or $67 million is “driven by higher net revenue, and a modest decrease in expenses and in the provision for credit losses.”  

BMO Wealth Management comprises two sub-sectors, Traditional wealth business and Insurance. The first one advanced, while the second slid:  

  • For its insurance operations alone, BMO reports net income of $72 million in Q1 2021, down from $82 million in the first quarter of 2020. The decrease amounts to 12.10 per cent or $10 million.  

  • For its traditional wealth business, BMO reports net income of $286 million in Q1 2021, versus $209  million in the first quarter of 2020. This result is up 36.8 per cent or $77 million, “driven by higher revenue, primarily reflecting stronger global markets and higher online brokerage revenue.” It is also BMO's best quarterly result since at least 2016.  

Three other sectors progressed, 1 declined  

Of BMO's five segments, only one declined in the first quarter of 2021: Corporate Services. This segment reported a net loss of $143 million compared with $105  million in Q1 2020. This result corresponds to a drop of 36 per cent or $38  million “primarily due to higher expenses and the impact of a favourable tax rate in the prior year,” BMO explains. 

In step with BMO Wealth Management, three other lines of business grew in the first quarter of 2021:  

  • Canadian Personal and Commercial Banking reported net income of $737 million, compared with $699  million in Q1 2020. This increase of 5.4 per cent or $38  million resulted from “higher revenue, with an increase in net interest income, partially offset by a decrease in non-interest revenue, lower expenses and a modest decrease in the provision for credit losses.”  
  • The U.S. Personal and Commercial Banking segment reported net income of $582  million, compared with $351 million in the first quarter of 2020. This marked increase of 65.8 per cent or $231 million was “driven by higher revenue with increases in both net interest income and non-interest revenue, lower expenses and a lower provision for credit losses, primarily due to lower commercial provisions.”  
  • BMO Capital Markets  reported net income of $483 million, up from $356 million in Q1 2020. The increase of 35.7 per cent or $127 million reflects “strong revenue performance in Global Markets, partially offset by higher performance-based expenses, with a modest decrease in the provision for credit losses,” BMO explains.  

“All businesses performed well, particularly in our U.S. segment, which remains a key driver of diversified earnings growth now and in the future,” White says.  

Decrease in net insurance income  

Net of claims, commissions and changes in policy benefit liabilities (CCPB), BMO Wealth Management's net income, for both sub-sectors combined, was $1.4 billion, compared with $1.3  billion in the first quarter of 2020. The increase amounts to 5.1 per cent or $67 million, primarily reflecting “stronger global markets and higher online brokerage revenues, partially offset by lower insurance revenue,” BMO says.  

More specifically:  

  • Wealth management revenues, net of CCPB, were $1.2 billion. They are up 7.02 per cent or $84 million compared with Q1 2020, “ reflecting stronger global markets, growth in online brokerage revenues from higher transaction volumes and higher net interest income with strong deposit and loan growth, partially offset by lower margins.”  
  • Insurance revenues, net of CCPB, were $131 million, compared with $148  million in the first quarter of 2020. They are down 11.5 per cent or $17  million “as the prior year included benefits from changes in investments to improve asset-liability management and more favourable market movements, relative to the current quarter,” BMO says.  

Net CCPB, BMO Financial Group's total revenues were $6.4 billion in the first quarter of 2021 compared with $6  billion in the corresponding quarter of 2020. This total signals an increase of 5.7 per cent or $343  million.  

“We achieved solid revenue growth of 6 per cent, compared with the prior year and the prior quarter, and continued to effectively manage expenses and strategically invest for future growth, with operating leverage above 7 per cent and an efficiency ratio of 56.3 per cent,” White explains.

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