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BMO Shares Surge on Earnings Post

Bank of Montreal takes big loan loss, cuts more than 1,000 jobs -- and the market rewards it with surging shares.
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With bank confidence slow in coming around,

Bank of Montreal's

(BMO) - Get Bank of Montreal Report

second-quarter earnings announcement this morning was all the more titillating. By most accounts, BMO's earnings, along with good consumer index numbers, helped boost the market today.

Still, a sober assessment must be made: First, the bank reported a net income of C$358 million. That's down from C$642 million in the year-ago period -- a whopping 44% reduction.

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More importantly, credit loss set-asides were increased to C$372 million. That's a C$221 million increase from the same period last year. In a considerable understatement, the earnings release said that "the credit environment was considerably weaker than a year ago." About C$127 million of that came from Canadian operations, while C$245 million came from the U.S.

Still, this was, in fact, all better than analysts had predicted. The commercial banking segment also posted a $350 million income, or $30 million better than the year ago period.

"Conditions remain challenging in credit markets and the capital markets environment," Bill Downe, President and CEO of BMO said. "However, we are appropriately positioned to cope with these conditions. Our strong capital and liquidity positions permit us to make opportunistic acquisitions, such as the acquisition of the Canadian life insurance business we completed in the quarter."

The bank took in 61 Canadian cents per share. But when excluding a C$80 million charge for severance costs -- tied to job cuts for more than 1,000 -- and another C$80 million in charges because of the capital market environment, the bank finished with EPS of 93 Canadian cents. Like magic, that figure slides just ahead of analysts' 91 cent projection.

As the first of the Canadian banks to issue earnings for the period, investors were thirsting for any sign that banks are making a comeback. Apparently, all of that news was good enough for them. Shares of BMO soared today, finishing the day up 7.4%, or $2.71, to close at $39.28.

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