Bank of Montreal (BMO) and National Bank of Canada (NBC) have both issued a significant number of structured products tied to dividend underlyings during the final quarter of 2021 (1 August – 31 October), SRP data shows.
BMO issued a total of 124 structured products tied to the dividend underlying sector in Q4 21 with sales amounting to US$305m. The sector was the most popular during the period with common underlyings being the Solactive factor index offering such as Solactive Canada Pipelines AR Index, Solactive Canada Bank 30 AR Index, and Solactive Canada Insurance AR Index.
Other popular underlying sectors for the Q4 21 period were travel and leisure (27 products), banking (22 products), and transportation (28 products).
BMO also rolled out four principal-protected ESG notes in Q4 21 which were all tied to the bank’s proprietary index BMO Fossil Fuel Free ESG Index. The BMO Fossil Fuel Free ESG Index Linked Principal Protected Deposit Notes, Series 10 features an uncapped call payoff and is expected to reach maturity in seven years. It will return 100% of invested capital plus 100% participation in the growth of the underlying if the underlying is above its initial level at the scheduled maturity date. If the underlying is below its initial level, the product will return 100% of invested capital.
NBC churned out a total of 118 dividend structured products in Q4 21 with other dominant sectors including utilities (25 products), decrement (42 products), and oil and gas (12 products).
Within the oil and gas sector, the bank rolled out several autocallable contingent income notes including the NBC Auto Callable Contingent Income Note, Canadian energy companies, September 23, 2024 which is tied to equity share baskets consisting of Canadian Natural Resources, Cenovus Energy, and Suncour Energy.
The product will reach maturity in three years and features a knockout, reverse convertible, and digital payoff type. If the underlying is above 70% of its initial level at any observation date, the product pays a fixed Coupon of 3.12% pa.
In the final quarter of 2021, BMO issued 334 structured products compared with 317 products issued by NBC, making both banks rank second and third on the SRP league tables, respectively.
BMO’s product issuance hit its peak during the second quarter of 2021 with 408 products while NBC issued its highest volumes of 334 products during the third quarter of 2021. CIBC was the most dominant issuer group for the period with 372 products while Toronto Dominion ranks last with 104 products.
Business Lines
BMO
Bank of Montreal reported a net income of CAD2.2 billion for the fourth quarter, representing an increase of 36% from the same period a year prior. The bank’s net income for the fiscal year totalled CAD 7.8 billion, boasting an increase of 52% from the previous year.
Reported net income for the bank’s wealth management arm was CAD369m, an increase of 15% from the prior year while adjusted net income was CAD373m, an increase of 14%. Results were driven by higher revenue, partially offset by an increase in expenses.
The bank’s reported earnings per share (EPS) totalled CAD3.23, an increase of 36% while recovery of the provision for credit losses were CAD126m, compared with a provision for credit losses of CAD432m.
Capital markets reported a net income of CAD536m, an increase of 41% from the prior year, while results were driven by continued strong revenue performance, with higher investment and corporate banking revenue partially offset by lower global markets revenue.
‘We delivered another quarter of strong performance with positive operating leverage in each of our diversified businesses, contributing to strong earnings for fiscal 2021. This year, we significantly advanced our strategy to build a digitally-enabled, future-ready bank, underpinned by our Purpose and a winning culture,’ said chief executive officer Darryl White (pictured).
NBC
For the fourth quarter of 2021, NBC reported a net income of CAD776m compared to CAD492m in the same period of 2020. For the year ended, the bank’s net income totalled CAD3.2 billion compared to CAD2.1 billion in fiscal 2020.
These increases were driven by revenue growth in most of the business segments and improvements in the macroeconomic outlook, credit conditions as well as by a reduction in provisions for credit losses on impaired loans compared to the fourth quarter of 2020.
In Q4 21, the bank recorded CAD 41m in recoveries of credit losses compared to provisions for credit losses of CAD 110m recorded in the fourth quarter of 2020. For the year, NBC recorded CAD 2m in provisions for credit losses compared to CAD 846m in fiscal 2020.
The CAD 844m decrease was due to lower provisions for credit losses on non-impaired loans owing to improvements in the macroeconomic outlook and in credit conditions in fiscal 2021 compared to the significant deterioration in the macroeconomic outlook caused by COVID-19 in fiscal 2020.
‘The Bank delivered outstanding results in fiscal 2021. We generated superior organic growth and an industry-leading return on equity while maintaining strong capital levels and prudent allowances for credit losses,’ said chief executive officer Laurent Ferreira.