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HomePersonal BankingWealth ManagementSmall BusinessCommercialCorporate & InstitutionalAbout BMO


Remarks by William A. Downe, President and Chief Executive Officer, BMO Financial Group, at the Annual Meeting of Shareholders

Winnipeg, Manitoba, March 23, 2010

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Thank you, Chairman, and good morning, everyone.

Chers actionnaires, chers invités, mesdames et messieurs, bonjour.

Je vous souhaite à tous la plus cordiale bienvenue à notre 192e assemblée annuelle de la Banque de Montréal. Je suis heureux de vous avoir parmi nous en si grand nombre aujourd’hui.

It is a pleasure to be here in Winnipeg to gather face to face with all of you in this room and online through our webcast.

We have good reasons to feel positive this morning. We just finished a year of steadily improving performance – and we had a strong first quarter. Russ Robertson, our Chief Financial Officer, will provide you with more detailed numbers shortly. And this is an important review of what’s been achieved.

The Bank of Montreal has one of the best capital positions in banking. And we are rooted in markets that are now in recovery after a difficult global recession.

However, there are significant adjustments to come in financial regulation, in the ownership of assets, in the flow of goods and services and in a consumer market that continues to globalize.

What I would like to speak about today is how we will use our current position of strength to move ahead in a world that is undergoing fundamental change.

There are three themes that will be the focus of my remarks. These will determine not only the success of our bank, but equally the success and prosperity of the individuals and businesses we serve: our customers.

The first theme is the way we think about our business: that we are absolutely clear about how we are going to compete and serve our customers.

The second theme is the way that we manage performance: the strategic priorities against which we measure our progress and the investment we make in human capital.

The last theme is our ability to seize the growth potential that is before us, perhaps a once-in-decades opportunity to leverage our advantage and stretch our ambitions.

And there is no more appropriate place to have this discussion than at our Annual General Meeting – the day when we report to you, the shareholders. We are in business because of you, and for our many millions of customers in Canada, the United States and around the world.

Throughout the year we engage in active dialogue with shareholders in Canada and with our growing shareholder base in the United States, Europe and in Asia – and we look forward to the annual meeting as an opportunity to evaluate our progress and confirm the path forward.

Ultimately, our shares are held for the benefit of individuals directly or through mutual funds, retirement accounts and pension funds. As shareholders, your interests are represented by the members of our Board of Directors. I want to acknowledge David Galloway and the board for the guidance they have provided to the leadership team, and to me, over the past year. The board’s depth of experience and strong oversight represent an invaluable resource for our business.

I’d like to recognize one of our directors in particular, Bob Astley, who was born in Winnipeg, and is a graduate of the University of Manitoba.

Bank of Montreal has a long and distinguished presence in this city. We opened our first branch in Winnipeg in 1877, and it was about a century ago that we began to work on the magnificent building that stands at the corner of Portage and Main, across the street from here.

Today, the person who leads our team in Manitoba is Rick Jaques, our District Vice-President. Rick, I want to thank you for welcoming us here this week.

We have 15 branches in Winnipeg, including our newest at McPhillips and Machray. It opened just a year ago and represents a new investment of $2.5 million in the North End of the city.

Winnipeg is at the heart of a province that has weathered the economic turbulence of the past two years better than any other in Canada. As a city of entrepreneurs, it is representative of so many of the communities and customers we serve. The business of the bank rests on hundreds of similar towns and cities, customers living across a broad geography who look to us to provide them with help and advice with their finances.

Fundamentally, these customers have confidence in our bank because we are relevant to them.

How We Serve Customers
Our approach is deliberate. We work constantly to understand our customers, their hopes and ambitions and the implications of change for them and for us.

We encourage them to look to us for clear guidance and advice. We are a relationship bank. “Making money make sense” for our customers is how we’ve come to think, and how we operate.

Underscoring our growing success is BMO’s brand. It is highly visible, and it is not just the pervasiveness of the BMO blue. It’s the consistency of the BMO experience.

Brand power is the ability to capture the customer’s perspective. We understand that customers want less complexity. We’re providing guidance and introducing products that anticipate real needs, and because we are listening, we’re talking about things that matter to them.

Reflecting this, we became the first Canadian bank to launch a new family of Exchange Traded Funds. They are cost effective and diverse. We introduced the Smart Saver Account – the first savings account a person should have – and into which Canadians have put away approximately $1.6 billion to date.

Our LifeStage Fund offers principle protection and automatically evolves with you – adjusting risk over time.

And for those looking for exclusive card benefits, we are proud to be the first financial institution in Canada to leverage MasterCard’s new World Elite program, introducing a premium card to customers last week.

Our customers know as well as we do that it is necessary to adjust to living in a very different world:

  • They want to take responsibility for their own financial affairs;
  • They expect businesses to recognize their preferences and reduce complexity;
  • If they’re in business, they too must become more productive, access new markets and attract great talent; and
  • When it comes to banking and investing and the advice they receive, they now recognize the importance of quality and trusted relationships.

We understand this. We are building a company that listens, that’s straightforward and that helps customers be successful.

This year, we made money make sense for a fourth-generation business located in eight communities in western Manitoba and eastern Saskatchewan that – in a period of economic uncertainty – had the right business plan to grow and, with the assistance of the bank, made two successful acquisitions.

This year, we made money make sense for a second-generation farm implement dealer in central Manitoba. They opened a new full-service dealership in an adjacent town with advice, assistance and products from us that set BMO apart from the competition.

The things that made a difference in Virden and Steinbach, Manitoba made a difference in communities across the entire market we serve.

* * *

In 2007, we told our shareholders that the sum of all the actions we were taking would translate into increased revenue growth. In fiscal 2009, BMO’s revenues increased 8.4% in a period when both the U.S. and Canadian economies contracted.

We had confidence in the earning power of the bank through the cycle and maintained our $2.80 annual dividend, extending our payment record to 181 consecutive years. And in the first quarter of 2010, net income in our flagship Canadian personal and commercial banking business was up 28% over the same period last year.

Strategic Priorities Against Which We Measure Our Progress
Looking ahead, the next chapter for BMO will require commitment, good strategic thinking and well-planned action as we focus on earnings growth. And that carries right into my second theme – the management of performance against clear, consistent strategic priorities.

1. Earnings growth across our personal and commercial businesses
This is at the core of what we do, and our success in Canada showcases what we are capable of in terms of sustained performance.

We’ve delivered great customer service and top-line and net income growth – moving from the fourth quartile to the first quartile in our key measures. We are now working on upgrading the experience in all our channels to build on this achievement.

In P&C in the U.S., we have market-leading customer loyalty scores and anticipate profit improvement and further market share growth. Announced changes in our commercial account coverage, and also the return of loan loss provisions to historical levels, will be key contributors.

2. Accelerating the growth of our wealth management business – providing our clients with exceptional advice, emphasizing retirement and financial planning
We see our Wealth Management Business as the best run in this country and we plan to grow it aggressively. We are advantaged, and we have built strong, trusted brands. BMO Nesbitt Burns is ranked as an exemplar when it comes to customers feeling confident their needs are being met.

BMO InvestorLine is ranked number one in bank-owned online brokerages1 and is an industry leader in customer satisfaction2. Increasingly, Canada with its strong banks and strong supervision and regulation is becoming a safe haven for global investors. BMO is recognized as a leader in Private Banking with a growing presence in Institutional Asset Management.

3. Deliver strong stable returns in our capital markets business
In 2009, we successfully reduced off-balance sheet risk and focused our attention on our relationships with both issuers and investors. Our focus is on clients and on the sectors where we are clear leaders – sectors like global mining, oil and gas, food and agriculture.

With less capital deployed, this business can produce a better return on equity and focus attention fully on sectors and clients where we have a unique competitive advantage, and where clients see real value. The deep knowledge we bring to investment banking is distinguished by a globally recognized North American research capability.

4. Grow our business in select global markets to meet our customers’ expanding needs
BMO has had a presence in China longer than any other Canadian Bank, and we continue to benefit from the position we have built there. We have a viable, long-term platform for growth that remains a differentiator for us and is evidence of the valued relationship between BMO and China.

Last September, we announced our intention to incorporate in China and the application process is progressing well.

We have a long list of firsts in China:

  • The first Canadian bank to have a branch in Beijing. We now have four full branches in China.
  • The first foreign firm approved for equity ownership in a Chinese mutual fund company, Fullgoal.
  • The only Canadian bank appointed to market the initial public offerings of the ‘big three’ Chinese banks.
  • The only foreign bank to be ranked #1 in FX in the south of China.
  • And the only Canadian bank to be appointed as a currency market maker.

Our presence in and commitment to China is unmatched by any other Canadian bank. And we are there because it’s relevant to our customers.

Still on the theme of global markets, consistent with current negotiations on a new economic partnership between Canada and the E.U., this year we recruited an experienced sales team to distribute North American debt and equity in Europe, and we opened a new Investment Banking office in Paris.

5. Sustain a high performance culture
Underpinning the work we are doing in our businesses is a commitment to operational excellence and productivity. In 2009, we successfully balanced good expense management with consistent investment in growth. We will maintain this focus throughout 2010 with a goal of continued productivity gains.

Having the right human capital is also crucial to the bank’s ability to execute its strategic priorities. We are building the required talent mix and depth across the corporation through competitive promotion from within, and external recruitment from a global talent pool. There is tremendous leverage in the combination of high employee engagement, visible local leadership and the renewal of senior management capability.

Once in decades opportunities
In my opening comments I said I wanted to touch on a third theme and that is our ability to capitalize on the growth opportunities before us.

Much is made of the recent rebound in economic activity in North America and the various forecasts and risks for this year and next. As important as this is, it’s also important not to lose sight of the fundamental changes taking place in the world and the things that are going to shape our ability to be successful in the future.

Lurking beneath the surface of a preoccupation with the short term are dramatic demographic trends that will fundamentally affect all companies and households. Domestic demand in North America will grow more slowly than global demand, and the ability to compete for new global customers is going to depend on our efficiency of production and capacity to innovate. This will only be compounded by the realignment of global exchange rates.

What we know for certain is that over the next decade, Asia will account for a significantly higher portion of global GDP offset by a decline in Europe and Japan of almost the same magnitude. The Americas should keep pace with global growth. In that context, how companies in Canada and the United States adapt will determine the growth rates of our domestic economies.

If ever there was a time that we – and I am speaking about both BMO and our customers – should feel compelled to expand our markets and to invest in productivity, it is now.

Given the relative strength in the economy, businesses have a rare opportunity and clear incentives to step up innovation and their investment in leading-edge equipment.

In all this, banking customers, no matter where they are, need a strong financial partner. In the last couple of years, so many businesses in North America – whether in the lobster fishery on Canada’s East coast or in the industrial supply business in Indiana – found it was BMO who was there for them, and a partner for the long haul.

BMO has been making credit available across North America since 1817, and it makes sense that today there is so much interest in Canada’s banks and our regulatory system.

Canada has received well-deserved recognition for the resilience of its banks and insurance companies and, as a leader, has a legitimate role to play in achieving a global consensus on financial reform. Given the stability of our economy and our banking system, many countries believe that Canadian representatives on the Basel committee and in the G20 negotiations have the opportunity and the ability to exercise leadership in the crafting of a global framework for stability.

BMO has one of the strongest capital ratios in global banking with tangible common equity to risk-weighted assets of 9.5 per cent. There is uncertainty, and will be for some time, about the details of the Basel III proposals – in effect a common global capital standard. We are going into this process with high relative capital ratios and expect that the potential changes will reconfirm BMO’s position among the strongest banks in the world.

At the same time, we need to recognize that there are opportunities for Canada to make improvements, and a prime example is the pending creation of a national securities regulator. BMO is on the record as saying 13 regulators in Canada is 12 too many. That said, a national securities regulator would ideally employ existing provincial personnel, have regional offices and at the same time achieve the objective of consistent high-quality market supervision.

We are optimistic that the process of regulatory reform will lead to a better market for all participants, and in this context, we see emerging and time-limited opportunities to fundamentally change our competitive position.

We have an aggressive medium-term target to increase our average annual earnings per share growth rate to 10 per cent and achieve a return on equity of 17 to 20 per cent. We recognize that to accomplish this we must consistently invest in our business and our people.

We intend to grow by deepening share of wallet with existing customers and serving new customers within BMO’s unique geographic footprint. It spans Canada and extends south through the U.S. Midwest.

The way we look at this region, and the way we advise our commercial customers to look at it, is that it represents a population of 80 million people and a total GDP of $3.6 trillion3.

From this base, in line with the global rebalancing that is underway, we are supporting our North American customers as they expand into China and India – and companies in both these countries as they expand beyond their borders.

* * *

This morning, I began by saying we have reasons to feel positive.

We have a powerful combination of assets – engaged employees, financial strength and brand recognition – all of which are compelling us to expand our market position.

Thank you to all of our employees and particularly those right here in Manitoba, for your hard work over the past year and dedication to our customers.

And to everyone here today, thank you for your confidence in us, and for welcoming us so enthusiastically to Winnipeg.

Let me conclude by saying that as well as being shareholders, I know many of you are customers. But in case you’re not, we’d really like to have an opportunity to show you what we can do to make money make sense for you.

1 The 11th Annual Online Brokerage Survey, The Globe and Mail, November 2, 2009
2 BMO Wins Top Dalbar Honour for 4th Straight Year, January 18, 2010
3 Source: BMO Capital Markets, Canadian population and the eight states of the U.S. Mid-West.

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