SpeechesAddress to Annual Meeting of Shareholders by William A. Downe, President and Chief Executive Officer, BMO Financial Group
Saskatoon, SK, April 10, 2013
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Thank you, Chairman, and good morning everyone.
On behalf of our entire team in Saskatchewan – and all 46,000 employees worldwide – let me add my welcome to the 195th annual meeting of BMO Financial Group. It’s a pleasure to have so many shareholders with us today, both here in Saskatoon and by webcast.
Je vous souhaite à tous la plus cordiale bienvenue à notre assemblée annuelle de la Banque de Montréal. Je suis heureux de vous voir parmi nous en si grand nombre aujourd’hui.
Je voudrais commencer par reconnaître que nous sommes réunis aujourd'hui sur le territoire traditionnel de la Première Nation dakota de Whitecap. We’re gathering today in the traditional territory of the Whitecap Dakota First Nation.
Many of you will be well aware of the historic meeting that took place
not far from here, some 130 years ago, between John Lake and Chief Whitecap – a
meeting that led to the founding of Saskatoon and set the tone for more
than six generations of good relations between newcomers and the Dakota
BMO has long taken an interest in community life across Saskatchewan – from our earliest days in the province to our sponsorship of the upcoming CHL Memorial Cup hockey championship, which takes place next month here in Saskatoon.
Earlier this week we announced a $125,000 donation to the capital campaign for Saskatoon’s Ronald McDonald House. And, in what has become something of a tradition for us, we commemorated this year’s annual meeting with a gift to the people of Saskatchewan – a work of art, currently on display at the Western Development Museum and destined for the Mendel Art Gallery.
This legacy of community building is reflected in our relationship
with the Whitecap Dakota nation. We’ve forged a great partnership
with Chief Darcy Bear and his visionary team as they pursue a range
of development projects – including the Dakota Dunes Hotel – that
will create high-quality jobs in the province.
This is the kind of locally based initiative that we’re excited to see right across the country. Banks are here to serve commerce and to pave the way for business to succeed. We’re committed to public policy that encourages innovation as a driver of growth and competitiveness in the economies where BMO operates. And we do it in an explicit way – by bringing a larger commitment down to the individual customer level, to help innovative entrepreneurs launch new businesses or strengthen existing ones.
Our ultimate goal as a bank is clear: to ensure customers have control of their financial lives, to help them make better decisions with better information and to give them confidence in the choices they make.
This focus on helping customers have confidence is the first of three themes I’ll cover this morning.
The second is how well BMO is positioned as a North American bank, centred in the heart of the continent – and how that position translates into sustainable growth and strong financial performance.
And I’ll close today with some thoughts on a third theme: how connecting the resources of the bank to the individual needs of customers contributes to sustainable growth in the overall economy – and how that growth, built on a foundation of confidence and trust, is the key to long-term prosperity.
But as always with BMO, everything begins with the first theme I want to explore this morning: our deep respect for the intelligence of our customers – who have the last word.
The Power of Customers
We recognize that the value of our bank is in essence the collective value of our customers – in how much business they give us today and how willing they are to give us more tomorrow.
And if you have read our 2012 annual report to shareholders, you know that we’ve made this focus on the customer the central premise – beginning with the words on the cover.
This may strike you as an unusual thing for a bank to say. But for us it couldn’t be more appropriate. It is at the heart of our brand. Customers expect to feel in control when it comes to mapping out their financial futures – and deciding what role our bank will play in helping them get there.
This is something we understand innately.
Customers expect advice, but they don’t want to be preached to. They want to be in a position to make a better choice. It’s why we work so hard to translate complexity and distill it down to something understandable. It’s what drives us to listen closely to customers’ needs, to find the best solutions – to work harder for them. Because we recognize that our own success – our ability to drive shareholder value and create sustainable growth – is in direct proportion to their success.
This sums up why 46,000 BMO employees come to work each day – whether we’re facing customers across the counter, across a boardroom table or across a global network.
In a world with instant access to information, it’s been said that people have newfound power to call out businesses that don’t meet their expectations. But it’s equally true that people are willing to speak out passionately in support of those who deliver.
In the past, it was not uncommon for companies to place better customer experience and lower-cost operations in separate columns. They were seen as opposing forces that could never be fully reconciled. But this model simply isn’t valid anymore.
We believe that you can – and in fact, must – have it both ways. We can improve how we operate even as we’re enhancing the customer experience, because these two goals are interrelated.
The word or has been replaced with the word and.
A good example is the work we’ve been doing to transform the mortgage application process, which is highlighted in the annual report.
We brought together a small group of employees who work on the individual aspects of mortgage processing and asked them to look at how they would streamline our approach to make it work better – for customers and for the bank.
And what we found was that the insights required to create a more efficient and consistent process, and to significantly enhance the customer experience – those insights already existed. We only had to ask frontline employees.
On a typical mortgage transaction we can now be more effective in the areas customers care most about:
We’re bringing similar improvements in timing and consistency to our commercial lending business, to investment banking and to global asset management.
By giving customers more of what they expect – and doing it cost-effectively, guided by a clear and deliberate strategy – we earn the rewards of long-term loyalty and word-of-mouth advocacy. These are the prerequisites of sustainable growth, both in revenue and in the size of our customer base.
There’s a simple but fundamental truth of business that sometimes gets forgotten: one sure way to earn more income is to have more customers.
Every strategic building block we’ve set in place over the past few years is lined up against that opportunity – to attract more customers, and more business from our current customers:
Through five years of global financial turmoil, we’ve steadily built capacity. We’ve enabled a dramatic increase in the flow of transactions by expanding all channels: our branch network, bank machines, call centres and online and mobile banking.
Without doubt, we have fundamentally changed our position in the marketplace. And it’s clear that the surest way to convert this advantage into lasting value will be to accelerate the growth of our customer base by turning non-customers into new customers, and existing customers into lifelong relationships.
We are turning mortgage customers into deposit and credit card customers; introducing more personal banking customers to saving and investing; and continuing to grow the number of clients who award bookrunner mandates on their debt or equity issuance to BMO Capital Markets.
And for all those who want to control their financial destinies, who want to feel confident that they’re making the right choices, but who currently give their business to other banks, we’re going to show them their aspirations have a natural home with BMO.
We’re ready to welcome many more customers.
With all of our strengths working in concert, we’re asking ourselves the question: what remains to be done in order to add one million new customers every year?
Our confidence in the bank’s ability to realize these goals is only reinforced by the unique advantages and sheer scale of our North American footprint, which is the second theme I want to explore this morning.
North American Footprint
We have now fully integrated our large U.S. acquisition. BMO is the second-largest Canadian bank, measured by total number of retail branches in the U.S. and Canada.
We’ve effectively doubled our footprint in the U.S. And we’re seeing the kind of results that an ambitious acquisition should yield: adjusted earnings from our U.S. segment tripled from the previous year to more than $1 billion.
But these immediate, tangible benefits of our U.S. expansion have to be set in their larger context, and for that it’s helpful to think about our strategic footprint as it appears in the annual report.
The map on the screen illustrates, in broad strokes, how BMO is centred in the continental heartland and connects a network of regional economies, many driven by natural resources and agriculture.
The six key U.S. Midwest states where we operate, combined with Canada’s two largest provinces, have a total population of 74 million people and a nominal GDP of $3.3 trillion. Beyond that central positioning is our significant and long-established presence across Canada and in major centres in every region of the U.S.
We use our entire platform to give North American customers access to Europe, Asia and emerging economies around the globe, while serving as a critical corridor for overseas clients in their financing and investment activities on this continent.
This territory is defined as much by shared values and aspirations as it is by geography. It’s where hardworking people launch innovative businesses; discover smarter, often greener ways of doing things; and create jobs that didn’t exist before. It’s a place where people create entire industries from scratch. It’s a place like Saskatchewan, where the potential and the spirit of entrepreneurship is palpable.
Across our footprint, vibrant communities are helping to increase momentum at what is a key point in the economic cycle. The promise of sustainable growth that we see in the heartland brings economic benefits at the individual and household level, as people buy homes, raise families and invest toward their future goals.
In the context of this annual meeting, the clearest proof that our North American strategy is on track can be seen in BMO’s strong financial performance in 2012.
The bank and its employees achieved record results.
Reported net income was $4.2 billion, or $6.15 per share, reflecting good revenue growth and a lower provision for credit losses.
On an adjusted basis, net income grew to more than $4 billion – an increase of 25% over 2011.
Total revenue rose by 10% to an all-time high of $15.1 billion, and our return on equity was 15.5%.
Adjusted earnings per share grew by 18% – well above our target range of 8 to 10%.
We increased the dividend in 2012, and again in the first quarter of 2013.
Last year our capital ratio was not simply rebuilt – it rose to a higher level than it had been prior to making a large investment to expand our U.S. footprint. This strong position gives us flexibility in deploying capital going forward.
We finished the first quarter of 2013 with a common equity Tier 1 ratio of 9.4% and once again achieved strong results, reporting adjusted net income of more than $1 billion for the third consecutive quarter.
With our U.S. retail platform consolidated under the banner of BMO Harris Bank – backed by materially increased advertising support – U.S. Personal & Commercial banking posted very good growth in total loans and net income.
Importantly, we maintained momentum on both sides of the border in commercial banking – an area of strength and differentiation in our business mix, positioning us well in an environment of expansion.
Wealth management and Capital Markets also delivered very good quarters on the back of strong results through the end of fiscal 2012.
These results reflect BMO’s focus on customers, efficiency and prudent risk management – a focus that has served us well and reinforces our confidence as we look ahead.
Management sets ambitious goals, appropriate for a top-performing business, and establishes clear accountability in the measurement of performance.
This brings me to my third and final theme this morning: sustainable growth as the key to long-term prosperity.
BMO’s five strategic priorities are a clear statement of intent to turn strategy into action. These priorities focus all of us on achieving strong and sustained performance grounded in responsibility, transparency and trust.
Our commitment is clear:
Our priorities are anchored in the real world of banking – in the branches and offices where our employees work each day building relationships and forging trust.
Banks provide fuel for growth. The products and services of banking contribute to the expansion of capacity and the creation of surplus.
The world we live in, with the opportunities it offers, is dependent on growth, which brings with it new and better jobs – and confidence that standards of living can continue to rise.
What we do has value. The business of banks is a key ingredient in improving the quality of life.
We provide the capital and expertise that entrepreneurs need to launch new ventures, and that established companies need to grow.
We fund the innovation and productivity improvements that are essential for businesses to compete on a global scale. And through our stewardship of the financial system, banks help ensure sound, stable markets for investors and business builders.
Confidence in that system has not been universally shaken. At the same time, we have come through a period of economic uncertainty – and around the globe, many people have been forced to make difficult adjustments. Recognition of the importance of sound, responsibly run organizations and thoughtful regulatory reform is restoring confidence and trust.
For our bank, trust begins and ends in the day-to-day realities of helping customers meet their goals.
So I conclude today where we began: with customers. Everything we do is aimed at maintaining and strengthening the loyalty of the millions of customers who’ve chosen to bank with us – and the many more whose business we actively seek.
Our aspirations are built around growth and we’ve put in place the foundation that will enable us to grow our customer base, capitalizing on the enormous potential we see ahead within our North American footprint.
As we help our customers succeed – the innovators and job creators, the thoughtful borrowers and savers, the investors who’ve identified sound opportunities for the future – our success will be directly proportionate to theirs. And together we’ll contribute to the sustainable growth that ensures long-term prosperity on this continent.
BMO has embraced the advantage of competing in a larger space with more avenues for innovation and growth. We’ve achieved critical mass and grounded our business where the opportunity to deliver sustained, quality earnings has never been better.
And at the point where we can say that we’re adding a million new customers a year, the value we create will be a fraction of the value created by customers who have control of their financial lives, who are making better decisions with better information, and who have confidence in the choices they make.
Thank you for your attention. I will turn the podium back to the Chairman.