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HomePersonal BankingWealth ManagementSmall BusinessCommercialCorporate & InstitutionalAbout BMO


Remarks by Russel C. Robertson, Chief Financial Officer, BMO Financial Group, at the Annual Meeting of Shareholders

Winnipeg, Manitoba, March 23, 2010

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Thank you very much Bill, and good morning, everyone.

It’s a pleasure to be here in Winnipeg and to have the opportunity to meet with so many of you.

This morning, I’m going to report on the financial performance of our company in fiscal 2009 and the first quarter of fiscal 2010.


Before I begin, as some of my comments may be forward-looking, I would like to draw your attention to the caution regarding forward-looking statements. In addition, we use certain cash and core earnings measures to assess performance. Accordingly, we also provide this caution that these measures do not have standardized meanings under generally accepted accounting principles. Please refer to our 2009 Annual Report on page 91 for a discussion and reconciliation of these measures.


As I think back to last year’s Annual Meeting, I can’t help but be struck by how significantly the environment in Canada has changed, and – even more so – what significant positive momentum we have seen at BMO.

2009 can be characterized as a year when BMO demonstrated continued momentum in our core businesses, notwithstanding the market issues that impacted results.

I want to cover three main themes this morning:

  • How we are driving top-line revenue growth through our customer focus;
  • Our vigilance in managing expenses and;
  • The importance of capital and liquidity management.


Net income in 2009 was almost $1.8 billion – $3.08 per share – or $3.14 per share on a cash basis, and we generated a return on equity of just under 10%. This was achieved while absorbing $1.6 billion of credit losses, which, as expected, were higher than the previous year. Our tier 1 capital ratio at October 31 was 12.2%.


Taking you through our income statement, revenue for the year was a record $11 billion, up 8.4% or about $850 million from the previous year. This increase was driven by a number of factors. First, strong operating group performance. Second, a stronger U.S. dollar. And third, added revenues from acquisitions. The entire company has clearly been focused on top-line growth and the 2009 revenue numbers demonstrate this, and, as you will see shortly, the momentum continued into the first quarter of 2010.

As mentioned, the provision for credit losses for the year was $1.6 billion, reflecting continued weak credit market conditions.

Non-interest expense of almost $7.4 billion was up 7.1%, or almost $500 million, compared to 2008. The increase is primarily attributable to three factors. First, the stronger U.S. dollar. Second, added expenses from acquisitions. And finally, the expense line reflects severance charges during the year related to the simplification of our management structure across the organization by reducing layers and broadening mandates.

As I mentioned last year, we are aggressively managing expenses. Cost management is a focus in everything we do at BMO. Working across the enterprise, we have thoroughly reviewed our expenses in three key areas: employee costs, supplier spending and discretionary spending. We continue to manage employee costs carefully, while maintaining our high standard of customer service and leveraging opportunities to simplify the way we do business. We will continue to manage supplier spend in order to generate reductions from our preferred suppliers as well as managing demand internally. And finally, we continue to actively manage discretionary spending.


So while we grow revenue, we are keeping a watchful eye on expenses. Two metrics that we use to measure progress are the pre-provision earnings number, or simply put, revenue minus expenses, and the cash productivity ratio, which is cash expenses divided by revenues.

The pre-provision earnings measure is a simple but powerful way to look at core performance. It shows the core earnings generated by the business that are available to cover provisions for credit losses, income taxes and dividends. In 2009, this measure was $3.7 billion compared to $3.3 billion in 2008. This measure strengthened every quarter in 2009, and Q4 was the highest contribution in BMO’s history.


On the cash productivity ratio, you can see that for every dollar of revenue we earn we are spending less to generate it – which demonstrates continued efficiency in our spending. In 2009 cash productivity was 66.3%, which was an improvement over the 2008 cash productivity ratio of 67.1%. As with the pre-provision earnings measure, cash productivity improved throughout the year with the fourth quarter ratio coming in at 59.2%.


Let me now turn to the performance of our operating groups … where it is evident that our vision to be the bank that defines great customer experience is taking hold.

As a reminder, BMO employs a methodology for segment reporting purposes whereby expected credit losses are charged to the operating groups. The difference between expected and actual provisions is charged to Corporate.

Earnings in Personal & Commercial Banking - Canada, BMO’s largest business and the biggest generator of revenue and net income, increased over 15% to $1.4 billion in 2009. Revenues were $5.3 billion and represented almost half of the bank’s revenues.

Revenue growth was 8% year over year while expenses increased only 4%. Revenue growth was driven by volume growth in most products and improved margins. We are investing in the business, redesigning core processes and technologies to achieve a high-quality customer experience, create capacity for customer-facing employees and reduce costs. The cash productivity ratio for the year was 53.9% – a 220-basis point improvement from a year ago. Personal, commercial and cards loans all grew, as did personal and commercial deposits.

P&C Canada results improved steadily each quarter and for fiscal 2009. We were top tier in the Canadian peer group for both revenue and net income growth. We brought our vision and brand promise alive in our customer conversations. In a year full of economic uncertainties, we stood by our customers and showed them that we are different from the other banks. We offered them clear choices. And it’s showing up in our loyalty measures as we narrowed the gap to the industry leader for both our personal and commercial loyalty scores.

In our U.S. Personal and Commercial Banking business, revenue has grown steadily, reaching $973 million US dollars, a 2% year-over-year increase or a 9% increase after adjusting for the impact of impaired loans and gains from the VISA IPO in 2008.

Cost control was also evident in P&C U.S., where we had positive cash operating leverage of 1.6% in 2009, resulting from expense controls and an 11% reduction in our active workforce. However, non-performing loans – and the costs of managing them – have increased and will continue to impact reported profitability.

Deposit growth has been strong and steady; in 2009, Harris maintained its number two ranking for retail deposit market share in the Chicago metropolitan market, growing 7%, while larger banks lost share.

We are very pleased to note that in 2009 Harris was ranked number one in the US Midwest region for customer satisfaction in retail banking, by J.D. Power and Associates.1

Turning now to our Private Client Group, 2009 revenue was just over $2 billion. Revenue was reduced in the first half of the year but improved in the second half, reflecting the impact of the global equity markets on our assets under management and administration. Expenses were well managed as foreign exchange and acquisition expenses were partially mitigated by lower revenue-based costs combined with effective cost management.

Private Client Group earned net income of $381 million in the year. Assets under management and administration finished the year at $239 billion.

During the year we acquired BMO Life Assurance Company and consolidated our insurance operations within the Private Client Group to strategically align our insurance and wealth management businesses.

We also launched a number of new products including a family of exchange traded funds – or ETFs – and we were the first bank in Canada to offer a Registered Disability Savings Plan. Externally we continue to be recognized for the products and services we offer, including ranking first in the Canadian mutual fund industry for the third year for best overall customer service.

2009 was a very good year for BMO Capital Markets, with revenue reaching $3.5 billion, net income of approximately $1.1 billion and an ROE of 16.4%.

Performance in this group reflected the strong, diversified revenue flows of the business. The low interest rate environment – coupled with our strong liquidity and capital positions – allowed us to benefit from interest-rate-related trading opportunities throughout the year.

We’re optimizing our businesses to achieve the right scale and risk-return profile. We’ve downsized or exited some businesses, while investing in others such as the expansion of our European Institutional Sales Team. We continue to be recognized for our research, ranking in 2009 as the top Equity Research Group in Canada for the 29th consecutive year by Brendan Wood International. We’ve reduced both off-balance sheet exposures and run-rate expenses. And we continue to build strong risk management capabilities and enhanced risk transparency.

This may be most evident through a steady improvement in return on equity, which was over 20% in the third and fourth quarter of the year.

Corporate Services net loss for the year was $1.2 billion and was attributable to lower revenues including higher funding costs, higher provisions for credit losses and higher expenses primarily related to the severance charge.


The third area I would like to cover is capital and liquidity. We continue to maintain a very strong balance sheet. As I highlighted earlier, our year-end tier 1 capital ratio was 12.2% and our tangible common equity to risk-weighted asset ratio was 9.2%.

Our strong capital base and earnings power provides capacity to pay dividends, invest in our businesses and allow us to pursue opportunities including the previously mentioned acquisition of BMO Life Assurance. More recently we completed the acquisition of the Diners Club North American franchise which bolsters P&C’s North American corporate card business, and we also expanded our existing securities lending business in BMO Capital Markets.

Our liquidity and funding position remains sound as reflected in our cash and securities to total assets ratio, as well as in our level of core deposits which are considered to be more stable deposits. Our large base of customer deposits and strong capital base reduces our requirements for wholesale funding, and going into 2010 we had largely pre-funded maturities.

Recently, as Bill mentioned, in response to the global events over the past year or so, proposed new rules were published regarding capital and liquidity requirements. While it is not clear what the final rules will be, Canadian banks will likely emerge with continued strong capital positions, and BMO in particular is well positioned within the peer group.


Let me finish my remarks with a brief look at our first quarter results for 2010 which we announced on March 2.


We are pleased with these results which reflect continued momentum in our core businesses as well as disciplined expense management. Earnings were $657 million or $1.12 per share. On a cash basis, earnings were $1.13 per share and our tier 1 capital ratio improved to a very strong 12.5%. Return on equity in the quarter improved to 14.3%.


Revenue was a record $3 billion for the quarter, up almost $600 million or 24% from the prior year driven by improved market conditions in some of our businesses and volume growth. Credit costs of $333 million remain elevated but lower than previous quarters in 2009. The credit environment remains challenging. However, we are seeing positive signs, as there were lower levels of impaired loan formations in the quarter. Expenses were $1.8 billion, down slightly from the prior year. Lower expenses in part reflect the continued success of our cost management efforts. Pre-provision earnings were the second best in BMO history, just behind Q4 2009. Of particular note, P&C Canada’s performance continued to be strong, posting a sixth consecutive quarter of year-over-year net income growth.

Looking forward, we remain committed to our strategic priorities, and continuing to drive our performance.

Thank you for your time. I would now like to turn the podium back to the Chairman.

1 Harris was ranked “Highest in the Midwest for Customer Satisfaction in Retail Banking in a Tie” by J.D. Power and Associates in their 2009 Retail Banking Customer Satisfaction Study.


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