News Releases
BMO Continues to Invest in its Retail Businesses, is Managing Prudently in the Current Environment and is Taking Action to Reduce Volatility in its Capital Markets Businesses
Year-over-Year Operating Performance Highlights:
- Net income of $255 million, down $93 million or 27%. Excluding significant items2,3, net income of $617 million, down $56 million or 8.4%
- EPS1 of $0.47 and cash EPS2 of $0.49, down $0.20 and $0.19 or 30% and 28%, respectively. Excluding significant items2,3, EPS of $1.19 and cash EPS of $1.21, down $0.11 and $0.10 or 8.5% and 7.6%, respectively
- As previously announced, results in the quarter were impacted by significant items3 that lowered net income by $362 million or $0.72 per share. Results of a year ago were also affected by significant items that decreased net income by $325 million or $0.63 per share
- Strong tier 1 capital ratio, at 9.48% on a Basel II basis
1 All Earnings per Share (EPS) measures in this document refer to diluted EPS unless specified otherwise.
2 The adjustments that change results under generally accepted accounting principles (GAAP) to cash results are outlined in the Non-GAAP Measures section in the Financial Performance Review, where all non-GAAP measures and their closest GAAP counterparts are outlined. Results stated on a basis that excludes commodities losses, charges related to certain trading activities and valuation adjustments, changes in the general allowance for credit losses and/or restructuring charges are non-GAAP measures. Please see the Non-GAAP Measures section.
3 Significant items are discussed in the Significant Items section on page 7.
Quebec City, March 4, 2008 – BMO Financial Group reported solid first quarter results in personal and commercial banking and wealth management while overall performance reflected the difficult capital markets environment.
For the first quarter ended January 31, 2008, BMO Financial Group reported net income of $255 million or $0.47 per share. As previously announced, results included losses of $362 million after tax in respect of charges for certain trading activities and valuations adjustments and an increase in the general allowance for credit losses. These are detailed in the Significant Items section on page 7. Excluding significant items, net income was $617 million or $1.19 per share.
P&C Canada, our Canadian personal and commercial banking unit, reported higher earnings both year-over-year and quarter-over-quarter. “We are building momentum and I am encouraged with our progress in sharpening our focus on customers and making it easier for them to do business with us. Based on market share gains in personal and business loans relative to a year ago and the fourth quarter, we are on the right track and our initiatives will continue to pay off,” said Bill Downe, President and Chief Executive Officer, BMO Financial Group.
Results in our U.S. personal and commercial banking group were up from a year ago. Results decreased relative to an especially strong fourth quarter, as expected. “Our U.S. retail and commercial banking group had a solid quarter in an extremely competitive market. There was moderate volume growth but loan spreads were squeezed in the competitive lending environment,” added Mr Downe.
“Our wealth management business continues to deliver impressive results, growing net income year-over-year. The business has been successful at managing discretionary expense levels to the revenue environment, which should place it in good stead in this softer revenue growth environment.
“In the first quarter of 2008, we faced challenges due to the capital markets environment. Global financial markets have been significantly affected by a re-pricing of credit risk and BMO, like others, has been impacted by this change. Market participants were not being adequately compensated for risk, and the market is now adjusting for this. As these adjustments take place, volatility has increased and credit spreads have widened. Our results in BMO Capital Markets this quarter reflect this, but we are committed to producing high stable ROE in that business and we are taking the steps needed to reduce risk and volatility of results,” Mr. Downe added.
“We are reducing the size of our off-balance sheet businesses and seeking a better balance between risk and return. To reduce volatility and improve profitability, we are ensuring that our trading activities are primarily supporting clients with whom we have broad and valuable relationships. We will also reduce capital allocated to other trading areas and to certain of our lending portfolios where returns are not sufficiently attractive. And, our risk management group will assume increased direct corporate oversight into risk-return decisions made by the businesses.”
Corporate Services earnings reflected higher provisions for credit losses and lower revenues, offset in part by reduced expenses.
Mr. Downe indicated that, “Credit quality is typical for this stage of the credit cycle, when we start seeing emerging deterioration in the performance of customer accounts. We have seen an increase in delinquencies which, while still below the industry average, is an early indicator of coming credit losses. We are, however, confident that over time we will maintain the credit quality advantage we have historically achieved.
“Conditions are particularly difficult in some of our capital markets businesses. We have responded to these challenges in a number of ways in all of our businesses. We continue to focus on expense management, slowing the pace of spending on initiatives where appropriate, ensuring the benefits of discretionary spending produce maximum return and redirecting resources accordingly. Due to our consistent commercial lending practices, we expect opportunities to capture more business in more difficult market conditions. And we have responded to aggressive pricing in the retail market where customer retention/capture is at stake.”
Subsequent to the quarter end, we announced a proposal to provide senior-ranked support for the funding of our U.K.-based structured investment vehicles (SIVs). BMO liquidity facilities would backstop the repayment of senior note obligations to facilitate access to further senior funding, provide the SIVs with supplemental funding and permit them to continue the strategy of an orderly sale of assets to better realize on their value. This is discussed in more detail in the Market Environment section on page 6.
Results in the current quarter and in the first and fourth quarters of 2007 included significant items that lowered net income, as summarized below and detailed in the Significant Items section.
Net Income Summary
| (1) Significant items are discussed in detail in the Significant Items section on page 7. (2) Commodities losses in Q1 2008 were $12 million ($8 million after tax) and were not considered a significant item in the first quarter of 2008. (3) Reduced performance-based compensation associated with the charges has not been included in the determination of significant items. (4) These are non-GAAP amounts or non-GAAP measures. Please see footnote 2 to the preceding Operating Performance Highlights and the Non-GAAP Measures section that follows, which outline the use of non-GAAP measures in this document. |
Operating Segment Overview
P&C Canada
Net income was $302 million, up $5 million or 1.7% from a year ago and $15 million or 4.6% from the fourth quarter. Revenue increased $45 million or 3.8% from a year ago, led by accelerated balance growth across most products, improved mix and increased insurance revenue. Margins decreased from a year ago but improved relative to the fourth quarter.
Expenses increased more than revenues year-over-year, primarily due to increased employee-related expenses and initiative spending. Going forward, we intend to maintain our investments in key strategic initiatives and, mindful of interest rate pressures, continue to manage our tactical spending.
In personal banking, we continued to see growth in most products, particularly higher-spread loans and cards, as well as higher insurance revenue. Mortgages increased from the fourth quarter as growth in branch-originated mortgages more than offset the impact of our exit from third-party and broker mortgage channels. Personal deposits were up from a year ago and the fourth quarter and market share for personal deposits rose from the fourth quarter. We are seeing encouraging signs that our deposit initiatives are gaining traction. We're confident that the initiatives put in place in 2007 and 2008 will continue to drive further improvements.
In commercial banking, where we have earned a reputation for being a consistent lender throughout the business cycle, we increased our market share year-over-year and quarter-over-quarter and there was continued good growth in both commercial loans and deposits, priority areas for BMO.
Cards and payment services revenues increased year-over-year on improved volumes and transactions.
P&C U.S.
Net income was US$26 million, up US$1 million or 5.2% from a year ago. Revenue increased US$19 million or 9.9%, largely due to the inclusion of First National Bank & Trust's operating results. Net income decreased relative to very strong results in the fourth quarter.
P&C U.S. has operated in a difficult environment since 2006, with intense competition, soft housing markets and lower economic growth. Management has focused on effectively managing expenses, while still investing in growing the business, in the difficult operating environment. We are actively managing expenses associated with integrating acquired businesses, and are redirecting our talent and resources for maximum return. The market has faced disruption related to local acquisitions by Bank of America and National City and we continue to successfully and aggressively target customers and talent in this environment.
A number of financial institutions have experienced difficulties with exposure to subprime mortgages. P&C U.S. does not originate subprime mortgage programs and has very little retail exposure with subprime characteristics.
We completed the acquisitions of Wisconsin-based Ozaukee Bank and Merchants and Manufacturers Bancorporation, Inc. on February 29, 2008. These acquisitions add 41 full-service branches to our banking network.
Private Client Group
Net income was $98 million, up $7 million or 7.6% from a year ago. Revenue increased $13 million and 2.7% or by $25 million and 5.0% excluding the impact of the weaker U.S. dollar. The improvement was attributable to increased deposits in our brokerage businesses, higher trust and investment revenues in North American Private Banking and a change to a fixed fee charge in BMO Mutual Funds. Assets under management and administration have been affected by weaker equity and fixed income markets.
Private Client Group completed the acquisition of Pyrford International plc on December 14, 2007. Pyrford expands the group's international asset management capabilities outside of North America.
The group continues to innovate and be recognized for its products and services. For the second consecutive year, BMO Mutual Funds was awarded the Dalbar, Inc. Mutual Fund Service Award for best overall customer service in both the English and French language categories. Guardian Group of Funds won the 2007 Canadian Investment Award for Science and Technology Equity Fund. The Canadian Investment Awards, Canada's premier awards program, recognizes excellence in the Financial Services industry. On November 28, 2007, Full-Service Investing added Inhance Investment Management's Canadian Socially Responsible Investing (SRI) Portfolio to the BMO Nesbitt Burns Architect Program. Offering retail investors an SRI portfolio as a separately managed account is a first in Canada.
BMO Capital Markets
The group incurred a net loss of $34 million, compared with a net loss of $20 million a year ago. Excluding significant items in the current quarter and the first quarter of 2007, net income rose $73 million to $290 million, in large part due to the benefit of lower performance-based compensation. Significant items are discussed in the Significant Items section on page 7.
Market conditions were difficult, but on a basis that excludes significant items in both periods, revenue increased $38 million or 5.2% from a year ago with strong growth in our interest-rate-sensitive businesses and increases in commissions and foreign exchange trading. Commodities losses continued to decrease. They were $12 million in the current quarter and are not expected to be significant in 2008.
BMO Capital Markets participated in a number of significant deals in the quarter, including acting as joint book-runner in Franco-Nevada's $1.25 billion IPO, the largest mining IPO in North American history. We also participated in the largest private placement in South American history, acting as joint book-runner in Brazil's OGX Petroleo E Gas issue of US$1.28 billion of preferred shares. In addition, we were co-manager of Agrium's follow-on common share offering, with gross proceeds of $1.375 billion. New issuance activity was down slightly from the fourth quarter of 2007. BMO Capital Markets was involved in 84 new issues in the quarter, including 21 corporate debt deals, 23 government debt deals, two issues of preferred shares and 38 common equity transactions, raising $32.5 billion.
Performance Targets
Given the significance of charges recorded in the first quarter, our current expectations in respect of fiscal 2008 provisions for credit losses, the prolonged difficulties in the capital markets environment and the expectation that the economy will not perform as well as anticipated when we established our targets, we do not expect to achieve our annual earnings targets. We anticipate that specific provisions for credit losses of $170 million in the current quarter are indicative of the quarterly run-rate for the balance of the year.
| The above table contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. |
Caution Regarding Forward-Looking Statements
Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the ‘safe harbor' provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for 2008 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies.
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; interest rate and currency value fluctuations; changes in monetary policy; the degree of competition in the geographic and business areas in which we operate; changes in laws; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital market activities; the possible effects on our business of war or terrorist activities; disease or illness that impacts on local, national or international economies; disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 28 and 29 of BMO's 2007 Annual Report, which outlines in detail certain key factors that may affect BMO's future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives, and may not be appropriate for other purposes.
Assumptions about the level of asset sales, expected asset sale prices and risk of default of the underlying assets of the structured investment vehicles were material factors we considered when establishing our expectations of the future performance of our interests in the structured investment vehicles discussed in this document. Key assumptions included that assets would continue to be sold with a view to reducing the size of the structured investment vehicles, under various asset price scenarios.
Assumptions about the level of defaults and losses on defaults were material factors we considered when establishing our expectation of the future performance of the transactions that Apex and Sitka Trusts have entered into. Key assumptions included that the level of defaults and losses on defaults would be consistent with historical experience.
Assumptions about the risk level of our commodities portfolio and liquidity levels in the energy derivative markets and how that will affect the performance of our commodities business were material factors we considered in making the forward-looking statements regarding our commodities business set out in this document. Key assumptions included that the current risk level of the portfolio and liquidity levels in the energy derivative markets would remain stable.
Assumptions about the performance of the Canadian and U.S. economies in 2008 and how it will affect our businesses were material factors we considered when setting our strategic priorities and objectives, and when determining our financial targets, including provisions for credit losses. Key assumptions were that the Canadian economy will expand at a moderate pace in 2008 while the U.S. economy expands modestly, and that inflation will remain low in North America. We also assumed that interest rates in 2008 will decline slightly in Canada and the United States, and that the Canadian dollar will trade at parity to the U.S. dollar at the end of 2008. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies. We now anticipate weaker economic growth in Canada and that the United States will slip into a mild recession in the first half of 2008. We also expect lower interest rates and a somewhat weaker Canadian dollar than when we established our 2008 financial targets. Tax laws in the countries in which we operate, primarily Canada and the United States, are material factors we consider when determining our sustainable effective tax rate.
Economic Outlook
We anticipate that the Canadian economy will grow more slowly in 2008 than in 2007. While falling interest rates and high commodities prices should continue to support domestic demand, the weak U.S. economy and strong Canadian dollar will continue to weigh on exports. Housing market activity and residential mortgage growth are expected to moderate as past increases in prices have reduced affordability. Business investment is expected to slow, though ongoing strength in the resource sector should provide support to business loan growth. Growth in consumer spending and personal credit are expected to moderate in 2008 from elevated rates of recent years, as gains in employment slow. However, domestic demand should be supported by low and falling interest rates. Canadian interest rates are projected to decline further as the Bank of Canada addresses a weakening economy. The Canadian dollar is expected to trade below par with the U.S. dollar as commodity prices are likely to moderate in the face of softer global demand. As in recent years, the resource-based western provinces should outperform Central and Atlantic Canada, as manufacturers will continue to face challenging conditions.
The U.S. economy is projected to slip into a mild recession in the first half of 2008. The correction in housing markets shows no sign of ending, implying further weakness in mortgage demand. Consumer confidence has been depressed by tighter credit standards, lower home values and high fuel bills. Accordingly, personal consumption is expected to slow sharply this year, curbing growth in personal credit. Companies will likely scale back investments, resulting in slower growth in business credit. Capital markets activity is expected to remain volatile until the uncertainty in structured credit markets abates. Substantial interest rate reductions from the Federal Reserve are expected to continue in the first half of the year. Lower interest rates and sizeable tax rebates should spur an economic recovery in the second half of the year.
This Economic Outlook section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Market Environment
BMO's investment in ABCP of six BMO-sponsored Canadian securitization conduits have declined to $1,797 million as at January 31, 2008, compared with $5,931 million at October 31, 2007. We have commitments to provide backstop liquidity facilities to these conduits totalling up to $23.0 billion. The assets of these conduits consist primarily of Canadian residential mortgages and auto loans and leases and none have exposure to U.S. subprime residential mortgages. No losses have been recorded on the ABCP in these conduits.
We hold ABCP of third-party Canadian conduits as at January 31, 2008 with a carrying value of $302 million, compared with $308 million at October 31, 2007. We have no backstop liquidity commitments to these conduits. Realization on our investment in the non-bank-sponsored conduits will be affected by the outcome of the agreement reached among certain non-bank-sponsored Canadian ABCP conduits and investors known as the Montreal Accord. BMO is fully supportive of the resolution of the Montreal Accord.
We also sponsor Apex Trust (including Sitka Trust) [referred to as Apex], which provides credit protection on highly-rated leveraged super senior tranches of a diversified pool of U.S. and European corporate credits via credit default swaps. Stakeholders in Apex, including BMO, are engaged in discussions with respect to a potential restructuring of Apex. If successful, a restructuring would preserve the underlying economic value that continues to exist. BMO believes that the actual credit losses that will be realized over time in the transactions that Apex has entered into should be very modest. The mark-to-market charges that have been taken in Apex reflect the widening of credit spreads and not actual realized credit losses. BMO may decide to increase its investment in Apex as part of a restructuring transaction if it determines that it is in its interests to do so. BMO also noted that, with the restructuring discussions ongoing, no stakeholders had taken steps to enforce rights they may have as a result of the default of Apex.
While these credit default swaps in Apex had significant mark-to-market losses at January 31, 2008, the underlying corporate credits have experienced virtually no defaults. In the first quarter, we recorded charges of $130 million on our exposure to Apex. Charges taken in BMO's fourth quarter of 2007 and first quarter of 2008 in connection with Apex total $210 million, leaving BMO with a net position of $495 million as at January 31, 2008 in respect of investments and guarantees to third parties. The charges that BMO has taken as at January 31, 2008 reflected its expectations of the potential for a successful restructuring.
Since the quarter end, BMO has been in active negotiations to restructure Apex. On February 27th, Apex was unable to roll its notes and, as a result, did not meet its payment obligations. In addition, Apex failed to satisfy collateral calls. If no restructuring agreement is reached, BMO expects to record a charge of approximately $500 million related to its remaining Apex exposure in the quarter ending April 30, 2008. There is also additional risk should Apex not successfully be restructured. One noteholder of Apex is disputing BMO's demand for the return of a $400 million funds transfer. In addition, a swap counterparty is disputing its obligations of up to $600 million to BMO under an agreement and with respect to a total return swap transaction that the counterparty had previously confirmed. While BMO is confident in its position and will vigorously pursue its rights in these matters, it is not possible to determine the amount or probability of losses, if any, or whether any potential charges will be taken in the quarter ending April 30, 2008. It is anticipated that if a restructuring is successful, these matters would be dealt with as part of the restructuring.
We hold capital notes of BMO-managed London-based SIVs, Links Finance Corporation and Parkland Finance Corporation with a carrying value of Cdn$33 million at January 31, 2008. The capital notes are unsecured limited recourse investments that are subordinated to all other credit obligations of the SIVs. The net asset value of the SIVs capital notes as at February 28, 2008 was approximately US$755 million for Links and approximately €127 million for Parkland. The assets of Links and Parkland, net of cash, have been reduced from US$23.4 billion and €3.4 billion, respectively, as of July 31, 2007 to US$13.2 billion (net of cash of US$2.4 billion) and €1.4 billion (net of cash of €0.3 billion) as of January 31, 2008. As of March 3, 2008, the assets of Links and Parkland, net of cash, were approximately US$10 billion and €1 billion, respectively. This reduction principally reflects progress to date in the strategy to reduce the size of the SIVs. At January 31, 2008, we held Cdn$1.4 billion of senior notes, which rank higher than the capital notes of the vehicles.
On February 19, 2008, we announced a proposal to provide senior-ranked support for the funding of Links and Parkland. A definitive agreement is now in place to provide support to the SIVs through BMO liquidity facilities. The facilities will backstop the repayment of senior note obligations to facilitate the SIVs access to further senior funding, provide the SIVs with supplemental funding, and permit the SIVs to continue the strategy of selling assets in an orderly manner to better realize on their value. The liquidity facilities, which include previous financial support provided by BMO, are capped at a maximum of approximately US$11 billion related to Links and €1.2 billion for Parkland. Given the terms and conditions of the liquidity facilities and the maturity profile of the senior notes, the amount to be drawn is expected to be approximately one half of the maximum amount of the facilities.
In making this decision we considered a number of facts. The strength of BMO's financial position as well as the quality of the SIVs' assets allows BMO to extend this support without any material adverse impact on its financial position. The asset quality of the SIVs is high with over 90 per cent of assets rated AA or better by Moody's and over 80 per cent rated AA or better by Standard & Poor's (S&P's); certain of the assets ratings are on watch. On February 25th, in anticipation of signing these agreements, S&P's ratings on the senior notes of the SIVs were changed to AA-. On March 3rd, upon signing these agreements, Moody's confirmed the ratings of the senior notes at AAA, and simultaneously removed from review those notes that were under review for downgrade. The SIVs hold minimal U.S. subprime mortgages. The advances under the liquidity facilities will rank ahead of the subordinate capital notes. Capital note holders will continue to bear the economic risk from actual losses up to the full amount of their investment and BMO is not providing any protection from the economic risk to capital note holders, now or in the future. The impact on Tier 1 Capital is not material and the amount of these liquidity facilities represents approximately 3 per cent of BMO's total assets at January 31, 2008. Asset sales and maturities and the maturity profile of the senior notes reduce the size of the expected funding to a level significantly below the full amount of the liquidity facilities.
BMO has committed to provide liquidity support facilities of $10.2 billion to our U.S.-sponsored ABCP conduit, Fairway Finance Company, LLC, and $624 million of the facilities have been drawn down at January 31, 2008. In the first quarter, a specific provision of $39 million was taken against amounts advanced under the liquidity facility. There is no ABCP on BMO's balance sheet related to this conduit.
Given the uncertainty in the capital markets environment, our investments in ABCP, SIVs, structured finance vehicles, Fairway and other mark-to-market investments could experience further valuation gains and losses due to changes in market value.
This Market Environment section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Significant Items
Q1 2008
In the first quarter of 2008, as previously announced, BMO recorded $548 million ($362 million after tax and $0.72 per share) of charges for certain trading activities and valuation adjustments and an increase in the general provision for credit losses. They included $488 million ($324 million after tax) in BMO Capital Markets in respect of: losses on exiting positions related to monoline insurer ACA Financial Guarantee Corporation ($158 million); trading and structured-credit related positions, preferred shares, third party Canadian conduits and other mark-to-market losses ($177 million); investments in Apex, a structured finance vehicle that BMO sponsored but to which BMO has not provided backstop liquidity ($130 million); and capital notes in the Links and Parkland SIVs ($23 million). BMO has no further exposure to ACA. Reduced performance-based compensation associated with the charges has not been included in the determination of the impact of significant items.
The $177 million charge above was primarily due to the impact of widening credit spreads on a number of our trading portfolios. The charge is comprised of a number of items, the largest of which is $78 million for counterparty credit risk on our derivative assets, with approximately half related to monoline insurers (other than ACA) and similar credit derivative companies. BMO holds $184 million of derivative assets on its balance sheet as of January 31, 2008 related to monoline insurers (other than ACA) and similar credit derivative companies. Contracts with these companies mostly relate to collateralized debt obligations and credit default swaps within our trading portfolio and provide protection against losses arising from defaults. These instruments have minimal subprime exposure. The protection provided is on our total notional portfolio value of $3.9 billion as at January 31, 2008. BMO also holds $962 million of municipal bonds insured by monolines, as at January 31, 2008.
The $488 million charge included reductions in trading non-interest revenue ($420 million), investment securities gains ($23 million) and other income ($45 million).
Corporate Services results included a $60 million ($38 million after tax) increase in the general allowance for credit losses to reflect portfolio growth and risk migration.
The impact of significant items is further set out in the tables that follow.
Q1 2007
In the first quarter of 2007, BMO recorded $644 million ($325 million after tax and $0.63 per share) of charges. We recorded commodities trading losses in trading non-interest income of $509 million which, net of an $87 million reduction in performance-based compensation and reduced income taxes, lowered net income in BMO Capital Markets in the first quarter of 2007 by $237 million. We also recorded a restructuring charge of $135 million ($88 million after tax) in Corporate Services.
Q4 2007
In the fourth quarter of 2007, BMO recorded charges of $416 million ($275 million after tax and $0.55 per share). They included $342 million ($227 million after tax) of charges recorded in BMO Capital Markets comprised of $318 million of charges for certain trading activities and valuation adjustments and $24 million of commodities losses. We also recorded $74 million ($48 million after tax) of charges in Corporate Services consisting of a $50 million increase in the general allowance for credit losses and a $24 million net restructuring charge.
The $318 million of charges for certain trading activities and valuation adjustments included: $169 million in respect of trading and structured-credit related positions and preferred shares; $134 million related to Canadian ABCP; and $15 million related to capital notes in the Links and Parkland SIVs. The Canadian ABCP charges reflected $80 million for our investment in commercial paper issued by Apex and $54 million for our investment in commercial paper issued by non-bank sponsored conduits. Both write-downs used an estimated mark-to-market adjustment of 15%. Reduced performance-based compensation associated with the charges has not been included in the determination of significant items.
The $342 million of charges in BMO Capital Markets consisted of reductions of $317 million in trading non-interest revenue, $10 million of trading net interest income and $15 million of securities gains, other than trading.
To view the rest of this news release consisting of:
| Financial Highlights | click here |
| Management's Discussion and Analysis | click here |
| Unaudited Financial Statements | click here |
INVESTOR AND MEDIA PRESENTATION
Investor Presentation Materials
Interested parties are invited to visit our web site at www.bmo.com/investorrelations to review this quarterly news release, presentation materials and a supplementary financial information package online. Copies of these documents are also available at BMO Financial Group's offices at 100 King Street West, 18th Floor, 1 First Canadian Place, Toronto, Ontario, M5X 1A1.
Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to our quarterly conference call on Tuesday, March 4, 2008 at 2:00 p.m. (EST). At that time, senior BMO executives will comment on results for the quarter and respond to questions from the investor community. The call may be accessed by telephone at 416-695-9753 (from within Toronto) or 1-888-789-0089 (toll-free outside Toronto). A replay of the conference call can be accessed until Monday, May 26, 2008 by calling 416-695-5800 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering passcode 648299.
A live webcast of the call can be accessed on our web site at www.bmo.com/investorrelations. A replay can be accessed on the site until Monday, May 26, 2008.
Media Relations Contacts
Ralph Marranca, Toronto, ralph.marranca@bmo.com, 416-867-3996
Ronald Monet, Montreal, ronald.monet@bmo.com, 514-877-1873
Investor Relations Contacts
Viki Lazaris, Senior Vice-President, viki.lazaris@bmo.com, 416-867-6656
Steven Bonin, Director, steven.bonin@bmo.com, 416-867-5452
Krista White, Senior Manager, krista.white@bmo.com, 416-867-7019
Chief Financial Officer
Tom Flynn, Executive Vice-President, Finance & Treasurer and Acting Chief Financial Officer
tom.flynn@bmo.com, 416-867-4649
Corporate Secretary
Blair Morrison, Vice-President & Corporate Secretary
corp.secretary@bmo.com, 416-867-6785