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HomePersonal BankingWealth ManagementSmall BusinessCommercialCorporate & InstitutionalAbout BMO


Address to Shareholders by William A. Downe, President and Chief Executive Officer, BMO Financial Group

Quebec City, Quebec, March 4, 2008

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Thank you, Mr. Chairman. It’s been a privilege to work with you and the other directors during my first year as chief executive.

I want the directors to know I appreciate their sound counsel in particular this year. And Mr. Chairman, you have been a wise mentor.

Good morning, everyone.

The 400th anniversary of the founding of Quebec is just four months away. This city and this province are in the midst of a year of celebrations. And there’s a lot to celebrate – not just past achievements but the Quebec City of today: cosmopolitan, vibrant, and recently named Canada’s most sustainable city.

This great city holds a special place in history – as the cradle of French civilization in the New World, and as the foundation of the Canadian state. And it holds a special place in the history of your company – which was the first bank to begin operations here, just weeks after being founded in 1817.

The people of this city were an important part of our beginning. Our commitment to them has not wavered, and it never will. Over the last decade, we have continued to revitalize our roots here and across the province – increasing our presence, our prominence and our contribution to the economy, the industry and the people of Quebec.

We were here 190 years ago, we’re here today. And under the leadership of Jacques Menard and his team, our commitment to the city and the province of Quebec remains strong, whole-hearted and unmatched by any of the other big five banks. We’re proud of the relationships we’ve built here.

Perhaps no relationship has exemplified this as much as our relationship with one of Quebec’s leading corporate clients, the retailer, Simons which dates back some 150 years. The loyal patronage of companies like Simons is the essence of the ability of BMO to grow, to adapt and to prosper in concert with the markets we serve.

As a bank, we were here to finance construction of the Lachine Canal. We were here to finance the development of hydro power in this Province. We were here in many of Quebec’s historic moments, and we will be here for the history it has yet to make.

With that in mind, today we celebrate our own little bit of history – 190 years in the city of Quebec, and the 190th meeting of shareholders. Welcome, fellow shareholders.

Today, our Company, which has always been strong and independent, stands less than 10 years from its bicentennial.

The task before us is to ready ourselves for BMO’s third century of serving customers.

Before I get to the substance of my remarks, I want to say a word about a legendary member of the Bank of Montreal family. Mr. Bill Mulholland passed away last fall. As chief executive during the 1980s, he was a singular presence and a larger-than-life figure.

He came to the bank after leading the development of the Churchill Falls project and led our expansion into the United States in 1984 with the acquisition of Harris Trust & Savings. His legacy extends beyond his years at the Bank.

For us, 2007 was a year of transition – a year of many successes but also of challenges that tested and confirmed the resilience of BMO and the people who work here.

Where we fell short, I (as CEO) take responsibility.

Early in the year, we recognized significant losses in our natural gas trading business.

Our focus quickly turned to reducing risk in the portfolio without resorting to a firesale of assets. We laid out a plan and executed against it.

In the second half of 2007 and continuing to this day, we have seen highly unsettled debt markets and a global revaluation of financial assets.

While this was triggered by issues in the U.S. sub-prime mortgage market, it brought attention to a broader issue – the mis-pricing of financial risk.

The last decade has been marked by mid-sized companies shifting their borrowing from banks to the securities markets to lower their cost of capital. At the same time, tremendous liquidity was building up globally, as investors searched for yield.

Global markets have been significantly disrupted by the re-pricing of credit risk in the last six months. Credit spreads have widened and in some instances, there is no appetite for certain securities at any price – even where the underlying assets are of a very high quality.

Many investors and intermediaries have been affected. BMO is in a number of (important) businesses directly affected by these global events.

These businesses, such as securitization and hedging of financial risk, are in place for clients of the Company who have valid needs in this regard, connected to their own organizations.

In light of market changes it is now clear that our positions grew beyond what was in line with our risk tolerance and strategic direction. We have taken action and are making permanent changes to address this.

  • We are reducing the size of our off-balance sheet business and seeking a better balance of risk and return.
  • We are reducing capital in these businesses except where the trading activities are in support of clients with whom we have broad and valuable relationships.
  • We are reducing our tolerance for volatility – insisting on tight procedures and even stronger management oversight.

It is critical that both the line business groups and the central control functions fully share responsibility for the continued adaptation and improvement of our risk management practices.

The business groups should represent the first line of defense in risk. They are accountable for understanding the risk inherent in their activities – and ensuring they are consistent with our Company’s risk appetite.
We have taken actions to ensure this is the case.

Going forward, Tom Milroy, our newly appointed head of BMO Capital Markets, will focus on clearly established parameters for reducing volatility and strengthening the risk management capability of the business by upgrading skills and procedures.

Within the risk oversight function, our newly appointed Chief Risk Officer Tom Flynn will be focused on renewing our entire risk architecture -- with a sharp emphasis on market risk. We are developing metrics that make risk more transparent.

We are upgrading our people’s risk oversight skills across all of our business groups. All of this work is happening as we speak and it is of the highest priority.

Turning now to our four operating businesses, their capacity to grow revenue and net income was confirmed in 2007.

Each of them is strong and has a well-diversified business mix. And we have plans in place to make all of them stronger.

In BMO Capital Markets, where the difficult issues of the year were centred, our objective of producing a consistent and stable 20% return on equity has been undermined by losses from certain parts of the business.

Losses in 2007 were somewhat mitigated by performance in other areas, such as Mergers & Acquisitions and Equity Underwriting – in other words, in areas where we had a key advisor role in serving clients. This year:

  • We advised BCE on the largest M&A deal in Canadian history and globally the largest LBO ever.
  • We were the joint bookrunner on the largest-ever North American mining IPO, Franco-Nevada.
  • We received our first M&A mandate in China, acting as sole financial advisor to Aluminum Corporation of China, the country’s largest diversified metals and mining company, in its acquisition of Vancouver-based Peru Copper.

I should add that Roger Heng, BMO’s General Manager in Beijing, was honoured today by Beijing’s Municipal Government today with the Great Wall Friendship Award – the top honour for foreign experts working in Beijing who have contributed to the development of the Chinese capital. Roger, I know you are listening to the webcast; congratulations from all of us!

Here in Quebec, we continued to be a major force in 2007. The Quebec team was involved in more than 50 M&A, lending and capital markets transactions, including Power’s $3.9 billion purchase of Putnam. And we demonstrated continued market leadership as lead lender to many of Quebec's most prominent and successful corporations – names like Aldo, Garda and Gaz Métropolitain.

Turning to our Private Client Group, it delivered another outstanding year of record net income. The group contributed more than $400 million to the bottom line, up 15% from 2006.

BMO Investorline was recently recognized by Surviscor as the top on-line brokerage for customer responsiveness.

Dalbar rated BMO Investments Call Centre number one for best overall service.

We are also very proud of BMO Harris Private Banking, which has a highly visible presence right here in Québec City under the leadership of Bernard Letendre.

BMO is setting the standard for Private Banking. We are convinced it will continue to be an area of rapid growth. We can be the market leader.

In the United States, our Personal and Commercial Banking operations also had a good year, overcoming a slow market environment. Excluding acquisition costs, we had four straight quarters of growth in net income in 2007 as the management team focused on converting high customer loyalty to earnings growth.

We also generated momentum with two acquisitions that will continue to grow our footprint in the U.S. Yesterday, we announced that we have closed on the purchase of Ozaukee Bank and Merchants and Manufacturers Bancorporation in Wisconsin, adding 41 full-service branches to our network.

Over the past six years, the number of branches we operate in the United States has grown from 140 to more than 270, and our number of Automated Banking Machines has tripled to more than 640.

And we have expanded our Business Banking capabilities into four new markets: Phoenix, Milwaukee, Indianapolis and Rockford, Illinois.

In Illinois, we see new opportunity to entrench the reputation of Harris as Chicago’s hometown bank. (We have been particularly successful in recruiting top employees from competitors and converting customers.)

And now I would like to turn to the largest of our four businesses, Personal and Commercial Banking in Canada. It is the biggest contributor to net income. Thanks in large part to our 8,000 frontline employees in almost 1,000 branches (some of whom I know are listening in today), this business delivered a record net income of $1.25 billion – up 9%.

There have been significant changes in Personal and Commercial Banking, and these have paid off. The business is now stronger and better positioned. The new management team is delivering improved customer loyalty scores and a recent reversal of the trend toward declining market share.

We see growth in most personal banking products, particularly higher-spread loans and cards, and our deposit initiatives are gaining traction.

We are bringing new products and ideas to market quickly. (For example) When the City of Toronto announced a new land transfer tax, within hours we offered to pay the tax for homeowners who took a mortgage with BMO.

In 2007, we made investments in infrastructure and the work force. We added 22 new branches, renovated and redeveloped 58 – and we’re going to build on this going forward.

We’re pleased with the success of the AIR MILES program that rewards customers for purchases they make using their debit cards. New account openings are up almost 28% over last year – and more customers are signing up for the program every day.

In commercial banking, where we have earned a reputation for being a consistent lender throughout the business cycle, we have put more senior, experienced bankers into key markets across Canada.

We’re continuing to see strong growth in both commercial loans and deposits as a result– both priority areas for BMO. Having increased market share in 2007, we continue to rank second for business loans under $5 million – and want to lay claim to first place.

Here in Quebec, the retail bank had a particularly strong year. It was one of our best divisions in Canada in terms of customer loyalty. The Quebec market is well-known in the industry for its attention to and appreciation of good service – and we’re going to provide the best customer service.

Also in Quebec, the BMO Maison de Rêve project raised nearly $1 million for organizations like l’Hôpital pour enfants Sainte-Justine, the Montreal Children’s Hospital, and le Centre hospitalier universitaire de Québec.

Tickets for this year’s draw are already available at all BMO branches in Québec – and at the kiosk out in the lobby.

Our successes and ability to overcome challenges were made possible by our dedicated and talented people all across the Company. 36,000 employees, who demonstrated skill in addressing challenges and showed commitment to our change agenda.

Our total workforce grew by 1,000 and, by doing work differently, we were able to eliminate approximately 1,100 positions that were duplicative.

So that’s a big-picture review of 2007 – encouraging results under the circumstances.

For 2008, we’re aiming higher, and we’re doing so with a growing confidence that’s evident in all areas of our operations.

Even in the face of what is likely to be a weaker credit environment, we will grow our businesses. We will do more for our shareholders. And we’ll do so by doing more for our customers.

At last year’s meeting I pledged to make BMO a bank “where the customer comes first, all the time.” Those aren’t just words. It is a directive to all employees at all levels of BMO Financial Group. In this era of sweeping change, there is but one constant: the business that is built one customer at a time.

In 2008, we will continue to invest in
1. Best customer experience
2. Developing strong leaders
3. Managing risk
4. Simplified processes

We will be assertive in challenging our competitors with new products and a strong focus on customer service.

We will continue to break down barriers in pursuit of a competitive edge. This is what motivated us to become the first bank in Canada to open on Sundays. We did it right here in the province of Quebec – and it’s been a big success, connecting us more closely with the needs of the community.

Because that’s what it’s all about: providing the services people want, where they want them and when they want them. Doing business with people on their terms.

In a moment, I’m going to ask Tom Flynn to review the financial performance and measures.

Tom has been acting CFO while Karen Maidment has been on a health-related leave of absence. I’m happy to be able to tell you today that Karen’s recovery is going well and we’re looking forward to her return.

I spoke at the outset about the opening of Bank of Montreal’s second location, right here in the city of Quebec, just a short while after the bank began operations. The board of directors at the time appointed an agent here. They sent him a supply of Army bills to cover drafts and costs. And with that money they sent a note.

The directors told their new agent, and I quote, “that integrity, care and diligence will be required of you.”

One hundred ninety years later, the same still goes for the officers of your company. Integrity, care and diligence – that is what you entrust us to exercise; and that is what my team and I pledge to deliver every single day.

Thank you.

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