BMO posts higher profit, to buy Diners Club NA

By Andrea Hopkins

TORONTO (Reuters) - Bank of Montreal reported a higher-than-expected quarterly profit on Tuesday and said it was buying the Diners Club North America credit card business to double its corporate card portfolio.

The deal, combined with a 16 percent surge in quarterly earnings at Toronto-based BMO, emphasizes the relative strength of Canada's big lenders as they emerge from the financial crisis with excess capital and solid balance sheets.

Canada's fourth-largest bank kicked off the earnings season for the big banks with net income of C$647 million ($610 million), or C$1.11 a share, for the fourth quarter ended October 31, up from C$560 million, or C$1.06, a year earlier.

Diluted cash earnings per share were C$1.13, well above the analysts' average estimate of 98 Canadian cents, according to Thomson Reuters I/B/E/S.

Minutes before announcing the surprisingly strong results, BMO said it was buying Diners Club North America credit cards from Citigroup Inc [ID:nN24290954].

The deal, part of Citigroup's strategy to shed noncore or unwanted assets, gives BMO exclusive rights to issue Diners Club cards in the United States and Canada. It will also more than double BMO's corporate card business, as many business travelers use Diners Club cards.

BMO said the deal would add nearly US$1 billion of receivables and US$7.8 billion of card transactions.

The terms of the transaction were not disclosed. The companies expect the deal to close before the end of the March, pending regulatory approvals.

"This acquisition will immediately enhance our competitive position by placing us among the top commercial card issuers in North America," said Frank Techar, the head of BMO's Personal and Commercial Banking business.

Earnings for the fourth quarter showed strength across most of BMO's business lines and geographies.

The amount the bank set aside to cover bad loans fell to C$386 million from C$465 million in a sign that credit woes may be easing as the recession recedes, at least in Canada.

The dividend was unchanged at 70 Canadian cents per common share, as expected.

Net income in Canadian retail banking rose 22 percent to C$394 million in the quarter from a year earlier, as revenue increased across personal, commercial and cards businesses.

Income on the capital markets side was stagnant, however. It edged down to C$289 million from C$290 million, ending a string of big quarterly increases.

Net interest income rose 2 percent to C$1.44 billion from C$1.41 billion

BMO is the first of Canada's big six banks to report fourth-quarter earnings, with the others presenting results over the next three weeks.

($1=$1.06 Canadian)

(Additional reporting by Euan Rocha in Toronto and Dan Wilchins in New York; Editing by Frank McGurty)