HomePersonal BankingWealth ManagementSmall BusinessCommercialCorporate & InstitutionalAbout BMO


Remarks by William A. Downe, President and Chief Executive Officer, BMO Financial Group at the Scotiabank GBM Financials Summit

Toronto, ON, September 5, 2012

(Please check against delivery)

Thank you, Kevin – and good morning, everyone.

It’s always a pleasure to be invited to the Scotiabank GBM Summit. For those bankers who have client facing roles, and I have one of those and have for most of my career, the new business year effectively begins on September 1st, and, in that sense, the timing of Kevin’s conference is just about perfect to talk about future plans.

Before I continue, please note the caution regarding forward-looking statements on Slide 2. You’ll find additional details in the public filings of BMO Financial Group.

There are three topics I want to cover this morning. I will begin with the elements of BMO’s strategy that are getting the most direct focus right now.

Because while our year-to-date numbers give a clear indication of ongoing performance – what’s even more significant for us is how those results validate our success in delivering against our strategic imperatives.

The second topic I’ll cover is productivity.

We also know that to sustain the current level of performance and build on our momentum, we need to continue looking for smarter, more efficient ways of doing things for customers.

Any business can appear more productive by taking costs out. We’re achieving meaningful productivity improvement with cost-effective innovation to help our customers succeed – and that’s what will drive our own success.

So I want to spend a few minutes talking about BMO’s pursuit of customer-driven productivity – which is well underway – and how it’s making our bank even more competitive while positioning us for sustained quality growth.

And then, as the third part of these remarks, I’ll walk through some of our financial highlights for this year.

But, as I said, I’ll start by setting out the main elements of BMO’s strategy.

Today BMO is the ninth largest bank in North America by market capitalization. We’re the second largest Canadian bank measured by the number of retail branches in Canada and the United States.

With approximately 1,600 branches and $198 billion in customer deposits, we’re increasingly able to share common technology, operations and resources across our entire North American network.

In light of this expanded footprint, we have a concise, three-part strategy to win competitive advantage.

  • First, we’re differentiating BMO in the minds of customers – and we’ll capture the value of that differentiation by gaining market share in the segments we serve.
  • Second, we’re creating new sources of revenue to complement our focus on growing the core business.

    A good example is BMO’s exchange-traded funds.

    In August 2009, we introduced our first fixed-income ETF with $3 million in seed capital – as of today the assets of our ETF family exceed $7 billion. According to Blackrock, BMO is now the 10th-largest fixed-income ETF manager in the world and growing. And year to date through July, we’re 6th best for global asset-gathering in the segment.

  • The third strategic element is focused on optimizing our resources. We’re working more productively and generating more revenue per employee consistent with prudent risk assessment.

    At the end of the third quarter of 2011, BMO had 47,400 employees. One year later, that total has been reduced to 46,600.

These three strategic elements are part of the fundamental change that has been unfolding at BMO since 2005.

We recognized then that we had to focus more of our investment and collective energy on customer advocacy. We began with a brand strategy that placed customers front and centre.

We summed up our goals in a new vision: to be the bank that defines great customer experience. Our promise to customers is that we’ll help them to make sense of complexity, to make better choices and to have confidence – which we express simply as Making money make sense.

This has become a key point of differentiation for BMO, and the lever by which we gain market share.

Despite the financial crisis of 2008 and subsequent global recession, we have not been tempted to retrench, or even ease up on our customer focus – because we’re committed to the longer-term view.

And for us, this clearly stated brand position was a precondition to advancing another area of focus: our U.S. platform.

The downturn created a significant acquisition opportunity – at an attractive multiple to earnings and book value – in our home market in the Midwest …and we acted on it.

With expected cost synergies in excess of $400 million – plus substantial progress on integration and rebranding – in BMO Harris Bank we have a foundation from which to generate top-line growth in a recovering economic environment.

We’ve become a larger, stronger bank in the U.S. heartland.

And, consistent with our strategy, we’ve created a new source of growth for BMO. We have confirmed our clear commitment to customers and transformed our U.S. platform.

Now we see an opportunity to optimize the resources of the total bank and to be more efficient in meeting the needs of our customers.

This focus on productivity is my second topic today – and one I’d like to cover in a bit more depth.

To maintain our momentum, we continue to focus on building customer satisfaction and long-term loyalty. But in support of that customer focus – not in spite of it – we’re targeting productivity in both parts of the equation: revenue and expense.

Some may see productivity as simply a response to the current environment. But the fact is, we would be doing what we’re doing in any environment. Because the kind of change that builds customer satisfaction and loyalty by definition will propel revenue growth – and therefore be sustainable.

The drive for greater efficiency is inseparable from the desire to do a better job for our customers. By optimizing our resources we can further boost customer satisfaction and build additional competitive advantage.

Over the past year we've been systematically evaluating every aspect of our business – every function, every process and every policy – looking for ways that we can work more efficiently while delivering superior customer experience.

And we’re already seeing the results. In both Q2 and Q3, BMO’s adjusted expenses declined sequentially. Year-to-date expenses have increased a modest 0.9%1, after adjusting for acquisitions and the stronger U.S. dollar.

Our goal is clear: to drive down the cost of generating the next dollar of revenue. Not necessarily to have the lowest efficiency ratio, but to be consistently competitive within our peer group while maintaining our strategy of differentiating BMO where it counts – as a leader with customers.

We want to make it easier for BMO employees to get things done for customers.

Let me give you a few examples:

We’ve launched a new branch format that will complement our traditional large Metropolitan branches with smaller Studio branches and mid-sized Neighbourhood branches. The goal is to create retail-banking spaces that are more productive and customer-focused while establishing more flexible, cost-effective distribution points across our network.

The result is a new generation of smaller branches that require:

  • 34% less square footage
  • 23% lower capital investment
  • and 16% lower operating expenses.

Our Net Promoter Scores for these new branch formats average 11 points higher. They’re reaching break-even five months faster. And in the first six months from opening, our revenue per square foot in these new branches is up more than 250%.

We’ve brought the same thinking to a whole range of other service enhancements rolled out over the past 12 months – from Mobile PayPass, to online booking of branch appointments, to a complete refresh of our Canadian online banking platform, which has won high marks from both customers and analysts.

And BMO Harris Bank has extended a platform gained through our U.S. acquisition to introduce mobile banking – including remote cheque capture. Customers can now scan cheques with their smartphones and deposit them electronically – without visiting a branch or an ATM.

We’re bringing our new focus on customer-driven productivity to reinventing BMO’s core processes as well.

A great example is what we’re calling the Mortgage Lab. In processing a mortgage application and approval, we can now set up an online community that links key internal players and the customer to ensure everyone gets exactly what they need, when they need it.

The pilot results have been exceptional:

  • a 20 to 30% improvement in processing time
  • a 60% reduction in deals that have to be rerouted for extra work
  • and an overall productivity gain of around 30%.

By erasing needless barriers and empowering our mortgage teams to respond more flexibly, we’re eliminating delays, making customers happier and reducing costs.

Another example of that ideal balance between cost reduction and serving customers better is our Leads Management Engine.

By leveraging customer data from new technology architecture, the system is generating high-probability leads based on recent transactions and anticipated needs. Staff in our branches and contact centres receive leads while they’re speaking with customers, and seamlessly integrate sales into the conversation.

At a broader level, our focus on efficiency is looking at all aspects of the way we work at BMO – internally and with our customers.

We’re simplifying decision rules for many routine transactions. We’re weeding out duplication of effort and better defining spans of control. We’re establishing clearer lines of communication.

And with invaluable feedback of our employees, we’re eliminating layers between senior decision makers and our customers.

At the same time, we’re using this work to reinforce the risk management practices that have differentiated BMO. We’ve embedded risk specialists into every BMO team that’s exploring new ways to improve and enhance the business – extracting productivity gains from more effective practices.

I spoke earlier about the significant synergies we’re capturing in the U.S. One of the benefits of integration has been the development of specific process enhancements that we’re now able to implement on a North American basis.

We’re taking every opportunity to benefit from our scale and develop products and services more cost-effectively across our expanded North American footprint.

The rollout of e-statements, for example, was launched in Canada and the U.S. simultaneously.

We’re now managing BMO’s call centres on a North American basis. This will allow us to provide exceptional customer experience, maximize our investment in staff and infrastructure, and effectively manage the risk of downtime.

The common thread linking all of our initiatives – and I’ve only touched on a few today – is that we can invest in what customers value most and improve our own efficiency in the bargain.

And, BMO employees take huge satisfaction in growing customer loyalty. In 2012, a record 39,000 employees responded to our annual survey measuring engagement across the organization. Engagement and advocacy scores – at 85% and 86%, respectively – are well above industry benchmarks.

At the same time, our shareholders benefit from the strong correlation between greater share of customer wallet and tangible improvements in the bank’s capital position and performance.

Higher satisfaction and higher productivity are two sides of the same coin – and they both drive higher revenue.

Which brings me to our financial results.

BMO’s strong year-to-date numbers are evidence that our strategy has impact.

Through the first nine months of the current year, our bank delivered $3 billion in earnings.

On an adjusted basis1, net income increased 21% and earnings per share were $4.35 – that’s 11% ahead of last year. Revenue grew 11%, reflecting the impact of both acquisitions and organic growth across the business. Return on equity was 15.2%.

Adjusted provisions for credit loss were down 57%1 from last year. And, we continue to see good core performance in our portfolios, along with significant benefits from our proven loan workout capabilities.

Our capital position is strong. Prior to closing the $4.1 billion acquisition of Marshall & Ilsley in July of 2011, we provided clear transparency around the Basel III common equity ratio, with 2019 rules fully implemented and IFRS fully phased in.

You might recall that at the end of the second quarter of 2011, immediately prior to closing, our pro forma ratio was 8.6%.

At the end of the third quarter of 2011, post-closing, our pro forma Basel III common equity ratio was 6.6%.

But, only a year later – as we reported last week – our Basel III common equity ratio has been rebuilt to 8.3%. And while we had contemplated the possibility of raising up to $800 million in additional equity for the acquisition – it wasn’t required.

As a further reflection of our strong capital position – as most of you are aware – last week we announced an increase to BMO’s quarterly dividend – up 3% to 72 cents. This increase validates our business strategies and our confidence in BMO’s continued ability to generate sustained earnings growth.

At the same time we moved our target dividend payout range to between 40 and 50 per cent. And, let me expand on the comments I made around this change on the Q3 call:

Having capital flexibility is appropriate for the future. It reflects a balanced approach to capital management within the B-III operating environment and demonstrates the capacity to execute against our strategy.

Secondly, we have confidence in the earnings and capital-generation capacity of the bank, which are the key to future dividend increases.

Most importantly, we’re in a period where our businesses have clear opportunities for reinvestment to drive high quality organic growth.

This strong growth potential was clearly evident in our third-quarter numbers. These have been covered in detail over the past week, so let me just touch on a few highlights:

  • Net income was strong at $1 billion and the consolidated U.S. businesses produced good results.
  • In P&C Canada, personal loans were up 6.3% over the same quarter last year.
  • Canadian commercial loans increased by 6.6% over the same quarter – the strongest quarterly growth we’ve seen in the past five.
  • Capital Markets delivered good performance overall, including the U.S.; and
  • We achieved good expense control and capital continued to strengthen.

Our investment in the three areas I’ve talked about this morning is yielding the positive outcomes we envisioned.

We have a clear strategy with a relentless focus on the customer.

We’ve expanded our North American footprint at the right time, in the right place, and we’re building on that opportunity to achieve long-term, transformational growth.

At the same time, we’re zeroing in on productivity through the lens of customer experience. Because this is what our customers expect – it’s what our employees are motivated to deliver – and it’s what will yield strong, sustainable returns for our shareholders.

Thank you for letting me share the BMO perspective. And, Kevin, if there are questions, I’d be happy to take them.


1Year-to-date, on a reported basis: expenses increased 2.5%, after adjusting for acquisitions and the stronger U.S. dollar; net income increased 32%; EPS $4.56, increased 22%; revenue growth 18%; ROE 15.9%; provisions for credit loss down 33%.