SpeechesDelivering Sustainable High Returns
Notes For Remarks By Tony Comper, President & CEO BMO Financial Group At Scotia Capital Financials Summit 2006
Toronto, Ontario, September 12, 2006
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Title Slide: Delivering Sustainable High Returns
Thanks very much Kevin and good morning everyone. As always, it’s great to be here and I look forward to addressing questions following my presentation.
I’d like to highlight BMO’s track record for delivering competitive returns throughout the credit cycle; and, looking to the future, talk about the capability we are building to deliver more aggressive results while maintaining a low risk profile. My key message is a simple one: BMO continues to be a compelling value proposition for investors with an appetite for sustainable high returns.
Slide 1 Forward-Looking Statements
I’ll start with a quick recap of BMO’s record performance in the third quarter and our outlook for the balance of the year. And then, with the usual caution regarding forward-looking statements, I’ll talk about some of the steps we are taking to substantially increase returns to shareholders in the short and the long term.
Slide 2 Highlights of Record Performance in Q3
As you’ll recall, BMO had an excellent third quarter, delivering broad-based, high-quality results. Net income climbed 30% to a new high of $710 million driven by record earnings in the Personal and Commercial Client Group and very strong contributions from our other groups. Relative performance was also very solid in an exceptionally strong quarter for the Canadian banking industry.
Slide 3 Economic Outlook
We’re also feeling pretty good about the economic outlook for the year.
Slide 4 Annual Targets
We are aiming to achieve our annual targets while making substantial investments in our businesses to drive more aggressive future growth, and I’ll give you some examples.
First, though, let me remind you that we increased BMO’s target dividend payout range in May to an industry-leading 45% to 55% of net income available to common shareholders. This increase, which was made possible by the stability of our earnings, reflects our confidence in our continued ability to increase earnings and our strong capital position. It also acknowledges the feedback we have been getting from investors about the increasing shareholder appeal of dividends given their improved tax treatment.
BMO has $3.3 billion of capital available for investment. This gives us the flexibility to return capital to our shareholders in the form of industry-leading dividend payouts while at the same time investing in business growth and making on-strategy, shareholder-friendly acquisitions.
Here’s a quick rundown of some recent and upcoming investments in key businesses.
Slide 6 Investing in Our Businesses: P&C Canada
We have also upgraded and refreshed 85% of our BMO Bank of
As outlined on the third-quarter conference call, we have taken actions to improve spread and are very pleased with the response to our simplified personal deposit product offering. Cross selling is a priority, and bookings of lines of credit and credit cards have been showing encouraging results in recent months.
With the recent announcement of our intention to purchase bcpbank
Frank Techar and his team are capitalizing on all of these investments in people, branches and technology to continue to grow profitably in personal and commercial markets in
Slide 7 Investing in Our Businesses: Private Client Group (PCG)
In order to provide our retail banking customers with all the best that BMO has to offer, including the full suite of personal investing products and services provided by BMO Nesbitt Burns and BMO Harris Private Banking, we are also increasing our sales force in the Private Client Group.
We are making very good progress in referrals between our Private Client Group and our Personal & Commercial Client Group as we continue to put the customer at the centre of everything we do. OneHarris referral volumes have increased by over 50% from last year, while referral volumes from the longer-established Canadian cross-selling effort have improved by over 40% compared to fiscal 2005. More specifically, referral volumes in
These efforts are also producing improved sales force productivity. Total revenue in the Private Client Group is ahead of last year by 9.3% (excluding Harrisdirect). And revenue per FTE for the year to date is 13% better than 2005.
Under the leadership of Gilles Ouellette, we have built a very strong wealth management platform – which, in addition to our established full-service brokerage, top-ranked direct broker, and top-ranked private bank, also includes our fast-growing mutual fund business, where assets have grown more than 75% in the past three years.
We are pretty excited about the work we are doing to help our customers invest and plan for their retirement years. A recent study by BMO in partnership with Ipsos Reid shows that the traditional notion of retirement is outdated, with 87% of Canadian boomers telling us the word retirement should be retired. They are seeing their next phase as a time to regenerate, a time to regroup and do the things they have always wanted to do.
As our Regeneration marketing campaign shows, we understand the distinct views about retirement held by our boomer clients and we are moving quickly to provide the help they need. BMO Mutual Funds launched two new funds in the third quarter to provide investors with tax-efficient monthly cash distributions. BMO Term Investments launched the BMO Income Generator to provide monthly income during retirement. And we recently held the first meeting of our new advisory council, a multi-disciplinary group of respected, external experts who will help us stay out ahead of this important trend.
We will have more to say in the months ahead about our plans to target the mass affluent personal investing market and very aggressively grow all our personal investing and private client businesses.
Slide 8 Investing in Our Businesses: P&C Chicagoland Banking
We are also making very significant investments in our
We passed a major milestone in August, completing the conversion of the Mercantile acquisition to the Harris technology platform. From now on, all existing Harris branches will be operating on the same advantaged platform, marking the end of a major undertaking that began two years ago with the consolidation of individual bank charters. And we are ready and able to absorb future acquisitions more quickly and cost-effectively.
In last year’s presentation I talked about our leading-edge banking model at Harris, which combines the best of two banking models to create a powerful, growth-generating bank with the efficient back office of a network bank and the customer-focused front office of a community bank. Essentially, we take costs out of the back office and, using a customer segmentation focus in our branches, take exceptional care of the right clients. Based on our experience to date – sales are up, retention is top tier, and productivity is improving – we believe this model will enable us to lower costs and grow revenue faster than our peers. It is a path we are continuing to pursue with great urgency.
In support of this effort, we are about 18 months into a program to develop the best (i.e., most effective) branch managers in the market – a strategy not easily replicated by our competitors. Branch managers at Harris will be better trained, better coached, and likely better compensated than other branch mangers in the market. In return, we expect revenue growth and customer satisfaction levels that are better than our competitors.
Slide 9 Continuing to Improve the Harris Customer Experience
And, most important of all, we are continuing to improve the client experience as a central part of our effort to improve performance. We are proud of the fact that Harris loyalty and customer service scores have gone up in quite a dramatic fashion in recent years as we have closed the gap on the small community banks and extended our lead relative to the big network players.
On Slide 9, you see a customer satisfaction metric we call the Net Promoter Score, which measures the likelihood that an existing customer would recommend our services. This is often recognized as the highest test of customer satisfaction. For retail customers, you can see that our performance exceeds, by a multiple of almost three, the experience delivered by the large network banks but we still trail the community banks. For business clients, we significantly outperform our network bank competitors and are at parity with community banks.
We also offer a breadth of services that the community banks can’t match. We are embarked on a series of initiatives aimed at assuring the delivery of a top tier sales and service experience for all three of the ways a client can interact with us – in person, on the phone and electronically.
With our advantaged platform, our on-the-ground experience and track record, and all the investments and initiatives now under way, we have already shown that we can compete effectively in a very competitive marketplace. Our model is producing good growth and is a strong foundation upon which we can and will expand under the leadership of our new Harris CEO, Ellen Costello.
Slide 10 Acquisition and Expansion Strategy
Harris’ goal is to become the leading personal and commercial bank in the U.S. Midwest with a network of 350 to 400 branches. And we want to accelerate progress toward this goal through a combination of aggressive organic growth, de novo branch expansion, and acquisitions.
Our acquisitions team is putting a lot of effort into finding the right
Slide 11 Investing in Our Businesses: BMO Capital Markets
During our busy third quarter, we proudly unveiled BMO Capital Markets, the new name that unites our investment banking functions in both
We are also making good progress in refining our sector focus in the
Slide 12 Long-Term Investments in
I’d now like to change my perspective from the near- and mid-term to the long term, and take a minute or two to talk about
With an eye on changing global realities, we are making small but significant strategic investments in
We are well positioned on a number of fronts. We offer a wide range of products and services, including Foreign Exchange, Trade Finance, and Corporate Lending and Risk mitigation, to our North American client base in
We also reached some important milestones in recent months. In June, BMO was the only Canadian firm involved in the Bank of China’s IPO in
Our modest investments in
Slide 13 Leadership in Credit Risk Management
Our investments in
I talked in detail about our credit leadership at last year’s conference, when we were all anticipating that the bottom of the credit cycle was nearing its end – and yet here we are one year later with losses still at historically low levels.
I won’t go through all the points I made last year but simply note that our revised target of a $250-million provision for credit losses for 2006 translates into14 basis points of average net loans and acceptances, well below our industry-leading, 15-year average of 38 basis points. And, looking at indicators such as impaired loan formations, we are not yet seeing signs of an imminent increase in losses.
Current economic forecasts and fiscal policy do not suggest a deep economic decline in
But until then, it is worth remembering that our expertise in credit risk management enables us to be consistent in our risk underwriting throughout the credit cycle. This is very much appreciated by all customers, especially our commercial clients, and gives us a rock-solid base from which to build our business.
Slide 14 BMO Is a High-Return, Low-Risk Bank
I also want to refer investors to the Boston Consulting Group global ranking of financial institutions throughout the world on the basis of Risk-adjusted Relative Total Shareholder Returns, meaning TSR adjusted for local market conditions. For the five-year period from 2000 to 2004, BMO ranks as the second-best large cap universal bank in the world. For the period from 2001 to 2005, BMO ranks seventh in the world, fifth in North America and third in
However, we can do much better. We are working hard to identify creative new risk/reward opportunities that enable us to deliver higher returns while maintaining a strong risk profile. And early results are promising.
At Harris, for example, we improved the relative yield of our consumer lending portfolio by seven basis points in 2005; and the total opportunity may be three to four times larger. This initiative will help us sustain our very strong portfolio and revenue growth in the
We are pursuing additional risk/reward opportunities in a number of other businesses.
Slide 15 Aggressive Pursuit of North American Vision
Both the BMO Board and the leadership team are very serious about achieving our vision to become the top-performing financial services provider in
As we assess the global financial services industry – and, as I mentioned, make manageable investments in locations such as
Slide 16 Strong Track Record for Growth
Which brings me back to today’s theme of sustainable high returns. I am asked with some regularity whether BMO can continue to deliver growth momentum.
My answer is unequivocal: yes, we can. BMO has delivered a strong showing in total returns to shareholders over the past 20 years, delivering an average annual TSR of 16.4% as of the end of the third quarter. We also have a good track record for increasing sustainable earnings per share.
Looking ahead, we believe we have a realistic shot at achieving our vision of top performance.
Both Bill Downe and I talked during the third-quarter conference call about the leadership changes we have been putting in place over the past several months to position BMO for higher growth in an increasingly global marketplace.
We have also talked previously about the intensive internal work we are doing to create a substantially improved work environment that is highly customer focused and performance driven.
All of this work continues at an aggressive pace, and you’ll be hearing more about our progress as we continue to position BMO for strong and sustainable growth.
Slide 17 Q & A
With that, I’ll conclude my prepared remarks and thank you for your attention. I’d be pleased to address any questions.
Slide 18 Investor Relations Contact Information