TSX drops 100 points, Bank of Montreal falls 4.5% as earnings report disappoints

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TMX Group tickers zoom across banners in Toronto on May 10, 2013. THE CANADIAN PRESS/Frank Gunn

TORONTO - The Toronto stock market closed sharply lower Tuesday as investors reacted negatively to the latest earnings report from the Bank of Montreal and pushed other financial stocks lower ahead of reports from all the big banks this week.

The S&P/TSX composite index fell 99.7 points to 13,319.87 with losses spread over most sectors. Traders are also cautious ahead of economic data later in the week that could give a better idea of where the Federal Reserve is headed in cutting back on stimulus measures.

Bank of Montreal’s (TSX:BMO) annual net profit hit a record $4.2 billion in 2013. That included $1.088 billion of net income in the fourth quarter, which was up one per cent from a year earlier. Its adjusted net income fell two per cent from a year ago to $1.102 billion or $1.64 a share.

That beat forecasts of $1.58 a share but Barclays observed that "BMO reported a $121-million gain in Wealth Management that is not recurring and will not likely be treated as core (earnings) in the market."

"This represents roughly 19 cents a share and would take BMO's core number to $1.45, well below consensus."

BMO's return on equity also dropped to 15 per cent versus 15.6 per cent. Its stock fell $3.28 or 4.46 per cent to $70.25. But prior to Tuesday morning, BMO stock was up more than 20 per cent from its 52-week low, leaving the shares vulnerable to a bit of profit taking.

"It’s a small blip," said Allan Small, senior investment adviser with Holliswealth.

"It wasn’t anything earth shattering and so, when you have a run-up as we have seen, especially in the last couple of quarters of the main banks and you have an earnings report that doesn’t kind of jibe with the rest of the run-up, this is what you’re going to get."

The bank’s quarterly dividend will be increased by two cents to 76 cents per common share.

The Canadian dollar was down 0.07 of a cent at 93.91 cents US a day before the Bank of Canada makes its next interest rate announcement.

U.S. indexes were also weak as the Dow Jones industrials dropped 94.15 points to 15,914.62, the Nasdaq dipped 8.06 points to 4,037.2 and the S&P 500 slipped 5.75 points to 1,795.15.

There is lot of U.S. economic data coming out this week, culminating with the release of the government’s employment report on Friday.

A strong employment report would raise concerns that the Fed is set to start tapering its US$85 billion of monthly bond purchases that have kept U.S. interest rates low and persuaded many investors to seek higher returns in the stock market.

Economists forecast that the American economy cranked out about 175,000 jobs in November, down 5,000 from October.

The TSX financial sector lost 1.57 per cent. Other banks reporting this week and under selling pressure included CIBC (TSX:CM), which lost $1.04 to $90.34 while Scotiabank (TSX:BNS) declined $1.16 to $64.19.

Industrials fell 1.4 per cent with Canadian Pacific Railway (TSX:CP) down $3.39 to $163.17.

The gold sector was also a drag, down 1.37 per cent as February gold gave back $1.10 to US$1,220.80 an ounce. Goldcorp (TSX:G) lost 49 cents to C$22.25.

The base metals sector was down 0.24 per cent with March copper was down one cent to US$3.17 a pound. First Quantum Minerals(TSX:FM) dropped 25 cents to C$17.

The energy sector was the major gainer, ahead 0.3 per cent while oil prices were slightly higher in the wake of a stronger than expected reading on U.S. manufacturing Monday and ahead of a meeting of the Organization of Petroleum Exporting Countries in Vienna on Wednesday.

The January crude contract on the New York Mercantile Exchange edged $2.22 higher to US$96.04 a barrel. Suncor Energy (TSX:SU) rose 65 cents to C$37.58.

Elsewhere, Potash Corp. (TSX:POT) shares were up 11 cents to $33.82 after the fertilizer giant said it was cutting its workforce by about 18 per cent, affecting about 1,045 people. The Saskatoon-based company says the decision is necessary because of soft demand for potash and phosphates.