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BMO, Scotiabank report higher profits, boost dividends


CHRIS WATTIE/REUTERS Bank of Canada governor Mark Carney has entered a national debate on whether corporations are sitting on too much cash.

Amid a growing national debate about Canadian companies sitting on record piles of cash, two of Canada’s biggest banks have reported another quarter of hefty profits.

Bank of Montreal, Canada fourth-biggest bank, raised its dividend for the first time in five years as it reported third-quarter profit grew 37 per cent to $ 970 million, or $ 1.42 per share.

Some of the increase came from the July 2011 takeover of Marshall & Ilsley Corp., the Wisconsin lender Bank of Montreal bought for $ 4.1 billion in the largest acquisition in its 195-year history.

Scotiabank, Canada’s third largest lender, reported record profit of $ 2.05 billion, or $ 1.69 a share, on a gain from selling its Toronto headquarters. Excluding one-time items, the bank earned a better than expected $ 1.22 a share.

Scotiabank also raised its dividend.

The dual reports come a week after Carney urged corporate Canada to boost economic growth by spending their piles of “deadmoney or return it to shareholders.

He was commenting at a labour convention on a study that shows companies are sitting on $ 526 billion in cash. The report, originally released in January by the Canadian Labour Congress, did not include the banks because they have to maintain large piles of cash to offset their liabilities, the union explained.

Last week was not the first time Carney has called on companies to step up and fill the void that will be left as debt-laden households and governments rein in their spending and pay down their loans.

However, his language was a bit more dramatic and created a stir among business leaders.

“I don’t know where they’re getting their numbers from. They’re only telling part of the story. Companies are investing in capital. They are expanding. It’s true they’re holding more cash but there’s some really good reasons,” said Jayson Myers, head of Canadian Manufacturers and Exporters.

“There’s a lot of uncertainty around the world,” said Dan Kelly, president of the Canadian Federation of Independent Business. “Companies are understandably a little bit cautious about making investments. I don’t think a pronouncement from the governor of the Bank of Canada is going to change the behaviour of big business or entrepreneurs.”

Canada’s banks have outperformed rivals in other developed countries many since the financial crisis of 2008-09 partly because Canada’s economy remains relatively strong, banks are well regulated and Canada avoided the worst of the housing crisis in the U.S.

“The strength of the banks comes from the strength of the economy. And the Canadian economy is very sound,” said Laurence Booth, a professor with the University of Toronto’s Rotman School of Management.

Bank of Montreal, the last Canadian lender to boost its payout since the financial crisis, raised its dividend 2.9 per cent to 72 cents a share on Tuesday.

The increase reflects “our strong capital position and our confidence in our continued ability to generate sustained earnings growth,” Bank of Montreal’s chief executive officer Bill Downe said in a statement.

Scotiabank raised its dividend payout 3.6 per cent to 57 cents a share.

Royal Bank of Canada, the country’s largest lender, Toronto-Dominion, the No. 2 lender, and Canadian Imperial Bank of Commerce, the fifth-biggest bank, all report Aug. 30.

However, Carney is also concerned about the very high levels of household debt in Canada.

Consumers have continued to pile on debt, spurred on by record low interest rates and incentives on things like cars.

Carney, who sets interest rate policy, has repeatedly warned Canadians to curb their borrowing, saying it’s the single biggest domestic threat to future economic growth.

The federal government has tightened mortgage lending rules four times. But recent data show non-mortgage loans continue to grow. – Business