Address to Annual Meeting of Shareholders by William A. Downe, Chief Executive Officer, B M O Financial Group
Toronto, ON, April 1, 2014
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Thank you, Chairman, and good morning, everyone.
On behalf of the employees of B M O Financial Group – all 45,000 of us – I’d like to repeat the Chairman’s words of welcome to the 2014 annual meeting of the bank.
Je vous souhaite à tous la plus cordiale bienvenue à l'assemblée annuelle des actionnaires de la Banque de Montréal. Nous nous sommes réunis dans plusieurs autres villes ces dernières années et aujourd'hui, c'est Toronto qui nous accueille.
I would like to add a special welcome to our Honorary Director, Mr. Ellis. It is such a pleasure to have you here at age 99, knowing that you have crisscrossed the country to attend 51 consecutive annual meetings of the bank.
We don’t forget that most of our shareholders, customers and employees are in regional markets. Since our last annual meeting in Toronto, we’ve met in Quebec City, St. John’s, Winnipeg, Vancouver, Halifax and Saskatoon. Wherever we meet, it’s a welcome opportunity to connect with our shareholders where they live and work. And it’s a reminder that B M O conducts business over a footprint that extends throughout North America and to select markets across the globe.
This city in particular is hugely important to us, and has been so for nearly two centuries – which is why we are here this morning. The Greater Toronto Area is a substantial market – home to well over a million B M O customers and more than 17,000 of the bank’s employees.
It’s also a thriving economy. B M O’s economics department is about to release a report forecasting renewed employment growth throughout the G T A, with the creation of approximately 230,000 jobs by 2017. And as an indicator of what drives that growth, it’s no coincidence that the city of Toronto attracts 80,000 new people a year, whose average age is 30.
Let me also acknowledge those across our footprint who are joining us this morning through a virtual connection. Our bankers in mainland China are with us, as are their colleagues in Hong Kong and other B M O offices in London, Mexico City, Abu Dhabi – all of the markets that are important to our customers.
Technology shrinks distances and erases borders. We all expect to be accessing information and holding real-time conversations on the move – and to never disconnect.
At the same time, much is being made of technology’s ability to disrupt existing business models and dramatically overturn the established order. The profitability of mature companies is seen as under threat from new ventures that initially attract market capitalizations many times their revenue.
That risk can be overstated. The disruption caused by emerging technologies is, in fact, a catalyst for positive change. New entrants succeed in displacing some incumbents – but they’re just as likely to illuminate new areas of potential, and spur re-investment in established business models that spark growth.
It’s in this context that we’re holding our annual meeting at the B M O Institute for Learning – the I F L – which celebrates its 20th anniversary in 2014.
This remarkable building is more than a symbol of innovation. It’s a tangible investment in the change agenda that has driven our bank for the past two decades, and that was clear long before this building was even on the drawing board. More fundamentally, it confirms our belief in the power of reinvention.
Since 1994, B M O employees have benefited from more than 460,000 sessions of I F L programs that span skills training, management education and leadership development. This focus on continuing education reflects our commitment to cultivating the kind of agile and adaptable workforce that can cope effectively with a changing marketplace.
Talented people naturally gravitate toward organizations that put a priority on achievement and offer the best career development opportunities. They want to work for employers who are committed to corporate social responsibility. And they expect to be part of a collective commitment to giving back to the community and to helping others succeed.
People who know this company understand that these principles are embedded in our very nature.
We want to ensure that B M O employees have the necessary knowledge and skills to stay ahead of a changing world, along with the agility to create and sustain value – not just in the short term, but over time. And in responding to change, strategic agility must rest on the solid bedrock of fiscal reliability.
If you’d bought your first 100 shares of the Bank of Montreal in the months just before the IFL opened, your initial investment would have been about $1,300. In the years since, you’d have received dividends totaling $6,800 – and by today, the value of your shares would have increased nearly six times.
Over those two decades, the earnings of the bank have increased in the same proportion. And in 2013, our continued success in balancing innovation with resilience and financial strength once again contributed to record results.
This achievement was guided by the five strategic priorities that are the framework defining our path forward.
They all put the customer first, and recognize that we have to be productive in doing so – because what we do for customers ultimately has to generate a return for our shareholders. This confirms that value has been created.
To grow, we are going to take full advantage of B M O’s North American platform and will continue to be strategic in how we expand into global markets, while ensuring – without question – that the management of risk on behalf of our customers remains a defining characteristic of everything we do.
All four operating businesses are moving into 2014 with clear momentum and a great deal of confidence in our continued strong performance. We’re well positioned not only to meet expectations, but to anticipate and surpass them.
At the same time, we recognize that the world is far different than the one we faced a decade ago. Because in the execution of our strategy, we have to contend with two large and disruptive forces.
On the one hand, our strategic priorities are affected by societal expectations around resilience and financial strength. This has taken the form of significantly higher minimum capital levels in our industry, and thousands of pages of new, and complicated, legislation – animated by a much higher level of regulatory engagement.
Even as our bank is working to simplify our customers’ lives, we have to wrestle with necessary but increasing complexity.
Finding the right balance between making customers’ lives easier, and maintaining confidence in a financial system that thrives on complexity, means looking beyond regulation to the reasons behind it. The rules, however complicated, are meant to foster integrity and strengthen trust. These principles have been critical to B M O’s success since 1817.
The other force shaping the execution of our strategic priorities is driven by the expectations that customers have of their bank – or of any business in a rapidly changing world.
When technology offers people experiences that are simpler or better tailored to their needs in one area of life, it influences their expectations in all areas.
As customers increasingly embrace mobile communications and continuous access to information, they look for instant responses to all of their transactional needs. They have a growing appetite for personalized service, in the moment. And their preferences change frequently.
There is a pressure to reconcile, simultaneously, the requirement for agility and the need to maintain absolute reliability. We have demonstrated both.
In 2013, B M O Financial Group posted net income of $4.3 billion and increased retained earnings by just under $1.7 billion.
We paid common share dividends of $1.9 billion and repurchased $675 million of common stock, effectively returning over 60% of earnings to shareholders.
And we contributed $1.7 billion in government levies and taxes.
We also completed the final, most significant elements of the conversion and integration of our 2011 acquisition of Marshall & Ilsley, capturing cumulative annual run-rate expense savings approaching $400 million.
And we positioned the bank for future growth in our four core customer segments: personal banking, commercial banking, capital markets and wealth management.
B M O’s capital position remains strong, with a Basel III common equity tier 1 ratio at year-end of 9.9% – the highest among Canadian banks. This capital strength enabled us to further increase the quarterly dividend by two cents, to $0.76 per share, in the first quarter of this year.
And it gave us the flexibility to tender for F&C Asset Management in January – a transaction approved by its shareholders this past week and targeted to close in May or June.
In the past year we also made significant changes in the bank’s leadership structure to reduce layers of management and increase the proportion of our employees in customer-facing roles – reinforcing a consistent operating discipline under the leadership of our C O O Frank Techar.
More broadly, we’ve initiated longer-term measures that will increase our responsiveness to evolving customer behaviour in a world where digital media and electronic commerce compel all companies to respond. This is something all of us at BMO identify with – and we’re investing in capabilities that recognize the shift.
We are helping to define change in our industry rather than having change define us. That thought frames two subjects I’d like to touch on today:
First, how we interpret the meaning of great expectations – not simply to stay in step, but to remain a step ahead of what customers expect from a bank.
And second, how the bank’s human capital will be an overwhelming determinant of future business success and growth.
We don’t have to look far to see how quickly those expectations are changing. B M O retail customers now do 41% of their banking from their computer, their tablet or their smart phone. And the growth rate has been exponential.
Not surprisingly, there has been a corresponding drop in transactions at ATMs and through telephone banking. But what may be surprising is that the volume of transactions conducted in branches has stayed more or less constant, at around 22%.
That’s not to say that the business conducted at a typical branch remains the same.
And this is the key point – everywhere we do business, the bank is modifying distribution channels to mirror customers’ habits and preferences.
While digital platforms and communication devices are fundamentally changing how people purchase and consume our products and services, the technology is simply an enabler. You will always get the service and guidance you need, regardless of how you bank with us.
The scale of our branches is evolving as well, with innovative formats that better fit customers’ priorities while still promoting the human interactions that drive our business.
And as we explore the new kinds of conversations that the digital world makes possible – instant, mobile, highly personalized – we’re deciding, together with our customers, where those conversations will take us.
We’ve incorporated the best features of the latest technology, and gained recognition for how it’s presented. When we introduced the newest version of our mobile banking app for BlackBerry 10 in February, we moved to the number-one spot among banking apps.
Android followed, immediately moving to a number-one position in its category – as did the iPhone app, with 920,000 downloads in 23 days.
The reasons we were named the Best New Finance App in the App Store include that customers can now book branch appointments from their mobile devices, instantly. They can also send travel notifications on the move, alerting us if they’re going to be using their credit or debit cards away from home.
As effective as such features are in making people’s lives easier, even more important is the feeling that the bank is both invested in, and connected to, what is happening in their lives.
Some aspects of our mobile app were co-created with customers; others reflect our anticipation of shifting preferences – to offer guidance, sometimes in unexpected ways. This is far less about an app’s features than how it works – it’s simple, intuitive, built around human nature.
You can see the same responsiveness in the evolution of our web presence. B M O’s public website has gone from sixth to second in the annual rankings by Forrester Research. Our secure banking site is now rated number two as well.
Customers are not simply conducting day-to-day transactions – paying bills or transferring money between accounts. More and more purchases of B M O products and services originate online, as people embrace the convenience and flexibility of doing things for themselves – knowing they can ask questions or seek guidance at any step in the process.
But there is another dimension to where all this is taking us. In embracing a future where constructive change is certain, we recognize what’s not certain is how customers will respond to the contradictions of the coming decade.
As people seek greater transparency and connectivity, their desire for security and privacy creates an opposite impulse.
What we do know is that individuals and companies bring their business to our bank because of the trust built by our brand. Money is personal, and a bank should be, too.
One of the challenges of the digital world is determining where its boundaries lie, and protecting privacy and data security has been implicit since B M O pioneered multi-branch banking more than 40 years ago. By being transparent with customers, we earn a level of trust that opens up more meaningful dialogue – and we trust them to tell us where the dialogue should begin and end.
Whether customers connect with us in person or on their mobile screens, they count on having private, secure and trusted conversations to help them control their spending, grow their savings, use credit prudently and invest wisely.
Equally important, as citizens of a connected world fluent in social media, they want us to respect their intelligence – to talk with them, and not just to them – and also to learn from what they have to say.
Above all, customers want the kind of personalized experience that goes much deeper than simply having their preferences recognized by a database.
A year ago, at our meeting in Saskatoon, I talked about the power of customers – the power not only to shape B M O’s products and services, but ultimately, through their loyalty and advocacy, to drive sustainable growth.
And I asked the question, “What remains to be done for the bank to add one million new customers every year?”
Today, we are that much more confident in our ability to turn non-customers into new customers, and existing customers into life-long relationships.
And what’s clear is that while technology is an important driver and enabler of change, it is our people who make the difference in the push to meet rising expectations – our technology is simply an extension of them.
The experience of the last decade confirmed the importance of financial capital in maintaining the trust and confidence of customers.
In the decades ahead, the human capital of the bank will be equally defining.
The ability to attract, develop and retain talent has never been more critical. B M O’s track record in the management of human capital has been a key source of differentiation, as our bank has come to be seen as an employer of choice.
The extraordinary building we’re meeting in today embodies our belief in the potential of all employees to acquire new knowledge; to grow, both professionally and personally; to meet challenges with innovative solutions; and, in doing so, to drive the overall performance of the business.
That’s why the average B M O employee devotes more than 35 hours a year to learning. And it’s why last year some 29,000 employees took advantage of the opportunities we offer for continuing education – here at the IFL, at other campuses and venues across North America, and through our online learning platform, which accounts for nearly half of all courses delivered.
Our total annual expenditure on continuing education is just over $90 million. It’s a significant investment. And so is the return, as employees gain the skills they need to apply new insights and help guide customers’ spending, saving, borrowing and investing.
We have been well served by this investment. The I F L, and the programs radiating from it, have strengthened our workforce.
But the challenges we’re addressing are different from those we faced 20 years ago. The nature of the assignment around human capital has evolved to mirror the rising expectations of customers. As people become more connected and empowered, their focus has shifted from the need for particular products and services to the desire for knowledge and confidence.
And just as co-creation with our customers is yielding more relevant and flexible products and services, collaboration with them is inspiring new ways of doing our work.
In the traditional organization, leaders were expected to deliver on goals. They set the policies and the direction for others to follow. They alone would decide what constituted success and how it would be recognized.
In an organization designed for a world that never stops changing, leaders give up the need to control every aspect of decision making. The people who report to them become more empowered – and, at the same time, more accountable – in addressing customers’ expectations.
Like our customers, we’re taking advantage of technology to find new ways of interacting and sharing information. What matters are not the specific facts we know – which can be searched in an instant – but our ability to understand different perspectives, to be flexible in tailoring solutions for customers… and even creating them together.
By the same token, learning fuels our drive to create a more diverse and inclusive workforce. It’s no accident that cultural intelligence is now seen to play a crucial role in driving competiveness, and in opening minds and broadening opportunity.
Above all, if we’re going to define change, rather than let it define us, we have to invest in learning that develops not only skills and expertise, but our readiness to change with the change.
What makes us confident of success is the fact that education at B M O has always been a two-way street. We invest in people who invest in themselves – in their own potential to do work that moves the bank forward. And the need for that level of personal investment has never been clearer.
One of the best examples of B M O employees taking ownership of their own career development is the Advanced Leadership Program. This was initially aimed at the top 100 or so members of the management team, to help them develop a common lens for viewing strategic decisions. But the program proved to be so effective in developing leadership traits and strengthening collaboration, it evolved into a much larger initiative.
Today the Advanced Leadership Program is jointly taught by the faculty of the I F L and the University of Toronto’s Rotman School of Management. Some of the world’s most respected instructors and researchers share their insights through a curriculum designed to facilitate change in a changing world.
Completing this program has shaped the perspective of a generation of emerging leaders at B M O. We can see its impact as they gain increased responsibility and progress in their careers. The value of the investment they’ve made in themselves is evident in their tangible contribution to the bank’s performance.
From a shareholder’s perspective, any measure of the bank’s performance will increasingly be framed by the forces we discussed earlier: changing societal expectations around financial resilience, and customers’ expectations of a bank.
These forces will prevail – in every sector of the economy. That insight has been top of mind as we've confirmed the strategic priorities of Bank of Montreal. And it is our continued success in balancing the two opposing forces that will allow us to grow the bank and generate returns for shareholders.
Let me finish with the aspects of operating focus that are going to be dominant in the execution of our strategy. These are the areas where we intend to direct our energy and capital – both financial and human – in the coming year:
- Extending the digital experience across all channels will allow us to further integrate it with our physical presence.
- Simplifying and automating for greater efficiency starts with empowering people to find new ways to streamline processes, modernize platforms and embed cost controls.
- Leveraging data to serve customers better depends on enhanced analytics. But it also requires human insights to interpret people’s needs and be more effective in tailoring products and services, acquiring new customers and assessing risk.
- And continuing to build a strong, differentiated brand around what we know – that money is personal, and that customers want to feel valued, understood and confident they’re making the right choices.
When you visit any of our branches or offices across North America and around the globe, you’re immediately struck by the remarkable people who work here.
It is B M O’s people who will enable us to define change in our industry, mapping its course and setting its pace. Rather than wait to see where the market is going, they will ensure that we stay ahead of it, leading through innovation, supported by unrivalled customer loyalty and grounded in our long history of trust.
And this is what makes it possible to talk about adding a million customers a year.
We’re confident that we’ll meet the expectations of all our stakeholders. Because we have the same great expectations of ourselves.
And now I’ll turn the podium back to the Chairman.