UPDATE 3-Bank of Montreal profit drops on restructuring charge as it cuts 5% of workforce

Nichola Saminather and C Nivedita

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Dec 3 (Reuters) - Bank of Montreal reported a drop in quarterly net profit on Tuesday, driven by severance costs as it cut about 5% of its workforce, sending shares lower even as earnings excluding the one-time item beat analyst estimates.

BMO's net income fell to C$1.19 billion ($894.67 million), or C$1.78 a share, from C$1.7 billion, or C$2.58, a year ago. The company took a restructuring charge of C$357 million, which included the payouts for job cuts and some real-estate costs.

The reductions are part of Chief Executive Darryl White's strategy to create a lighter structure at the bank. https://reut.rs/2DI7ge5

A 5% cut in its workforce equates to about 2,300 employees. BMO cut about 810 jobs in the fourth quarter.

The efficiency initiatives will save the bank C$200 million in fiscal 2020, Chief Financial Officer Tom Flynn said on an analyst call.

BMO shares dropped 3% to C$97.77 in morning trading in Toronto, set for their lowest close in over a month.

"It is difficult for us to credit good expense control in the face of yet another restructuring charge from this bank," Robert Sedran, an analyst at CIBC Capital Markets, wrote in a note.

BMO reported growth in expenses in its Canadian and U.S. retail businesses, both of which saw earnings growth of about 6%, and its capital markets division, which posted a 9% drop in profit. Net interest margin in its U.S. business dropped 11 basis points, another point of concern for analysts.

The wealth management division's adjusted earnings climbed 31%.

Credit Suisse analyst Mike Rizvanovic expressed concern about an unsustainable 16% growth in commercial loans in Canada, margin compression in the United States and the likelihood that a 4-basis-point margin expansion in Canada will begin to reverse as commercial loan growth slows.

The bank set aside C$253 million for credit losses in the quarter ended Oct. 31, up 45% from a year earlier.

Income excluding one-off items rose to C$2.43 per share, from C$2.32 a year earlier, beating estimates of C$2.41 per share, according to IBES data from Refinitiv.

Adjusted earnings for fiscal 2019 rose 4% from the previous year.

BMO also increased its quarterly dividend to C$1.06 from C$1.03. ($1 = 1.3301 Canadian dollars) (Reporting by Nichola Saminather in Toronto and C Nivedita in Bengaluru; Editing by Maju Samuel, Chizu Nomiyama and Andrea Ricci)