BMO Earnings: Capital Markets Segment’s Strong Momentum Continues

Key Morningstar Metrics for Bank of Montreal

• Fair Value Estimate
  : C$197.00
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Low

Bank of Montreal BMO reported strong fiscal third-quarter results, with adjusted earnings per share of C$3.96, up 23% from the prior-year quarter. These results translate into an adjusted return on equity of 14%, up 200 basis points year over year but still below the bank’s 15% medium-term target.

Why it matters: Adjusted earnings growth was particularly strong in the capital markets segment, up 45% from the prior-year quarter, and wealth management, up 22%. The capital markets segment’s year-to-date adjusted ROE was 16.5%, well above its 15.0%-plus medium-term target.

• Global markets revenue increased 27% year over year, mostly driven by higher equities trading revenue. Although the third quarter is usually seasonally weaker in the trading business, we surmise high-profile US IPO filings and artificial intelligence-related trades were strong drivers of higher equity trading volume.
• Management attributed the bank’s strong capital markets performance to market conditions and investments in the business. BMO recently announced the acquisition of the Australia-based capital markets business of Euroz Hartleys Group, adding equity distribution to its strong metals and mining investment banking franchise.

The bottom line: Following third-quarter results, we plan to increase our fair value estimate for narrow-moat BMO by a low-to-mid-single-digit percentage. We continue to view the stock as overvalued.

• The valuation increase will mostly be driven by higher capital markets and wealth management revenue, partially offset by the divestiture-related charges and higher compensation expense growth in fiscal 2026.
• We plan to maintain our outlook for a provision for credit losses ratio of 44 basis points. Amid new tariff announcements between the US and Canada, management guided that the bank’s fourth-quarter impaired PCL ratio would be in line with the 41 basis points posted in the third quarter.