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Bank Deals are Proving Profitable (Update 1)

Stocks in this article: BMO COF FNFG PNC RBC

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For Bank of Montreal, the Marshall & Ilsley acquisition may be a hedge to its regional businesses, in addition to a strongly timed U.S. based growth push.

In a February report, the Bank of Canada warned that a Canadian housing slowdown was the country's top economic risk because of a decade long increase in home prices and a recent surge in household debt.

Bank of Montreal, which has held its quarterly dividend steady at 70 cents, may use improved earnings from its U.S. business may help it lift its payout that lags peers like Toronto Dominion (TD). "BMO has the flexibility to raise the dividend. The Board/management needs to see further progress on the M&I integration before increasing the dividend, which we believe could take place in the second half of 2012," says Dechaine of Credit Suisse in his note.

Still, risks remain if Canada's housing market were to slow. "We believe 2012 is poised to be a challenging year, marked by pressured margins and muted revenue growth... Credit costs could creep higher given an over-extended Canadian consumer and frothy property market," write KBW analysts in a Wednesday note.

Overall, analysts expect Bank of Montreal to grow revenue and profits over 5% to $15.3 billion and $3.7 billion in 2012, according to analysts polled by Bloomberg, who give the bank a $63.57 a share price target.

-- Written by Antoine Gara in New York

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