Bank of Montreal 1997 Annual Report Download - page 36

Bank of Montreal 180th Annual Report 199730
Our Diversification Strategy Results in Strong Growth in Investment
and Corporate Banking and Global Treasury Group
In 1997 we made a number of organizational changes related to the creation of Electronic
Financial Services and the Global Treasury Group which included transferring some lines
of business from other groups. As a result, the contents of the remaining groups are not
the same as they were in 1996. The businesses that comprise each group are described at
the beginning of each operating group section over the next several pages. All financial
information has been restated to be consistent with the five operating groups as shown in
the table below.
Net income increased across most operating groups and in most geographic areas in
1997 as shown by the table below. Investment and Corporate Banking produced the highest income growth at 33.9%, driven
by strong capital markets in the low interest rate environment. Global Treasury’s net income increased $85 million
as a result of new business and product development as well as cash collections due to the improved North American
economy. Harris Regional Banking’s net income growth was 21.4% largely driven by volume growth offset by expense
growth. Personal and Commercial Financial Services net income declined 1.4%, resulting from strong business volume
growth and good cost control outweighed by a decline in net interest margin. Electronic Financial Services income
declined by $15 million due to business growth which was more than offset by strategic investment spending on mbanx.
The operating groups and their respective performance are discussed in more detail over the next several pages.
Strategy:
To allocate capital resources and
to make strategic investments on
a line-of-business basis with a view
to improving shareholder value.
Approach:
Our approach to making strategic
investments is based on the per-
formance of the various lines of
business relative to our economic
performance threshold.
Operating Group Review
Net Income and Average Assets by Operating Group
($ millions)
Personal and
Commercial Global Electronic Harris Regional Investment and Total
Financial Services Treasury Group Financial Services Banking (a) Corporate Banking Support (b) Consolidated
For the year ended October 31 1997 1996* 1997 1996* 1997 1996* 1997 1996* 1997 1996* 1997 1996* 1997 1996*
Net Income
Canada 539 547 102 100 35 63 00159 104 (292) (195) 543 619
United States 00201 146 50 65 186 153 (6) 8104 18 535 390
Mexico 006778 50 00000084 57
Other countries 0094 65 18 18 00(3) 034 19 143 102
Total 539 547 403 318 181 196 186 153 150 112 (154) (158) 1,305 1,168
Average Assets
Canada 58,711 55,253 27,197 12,973 4,532 3,723 0021,885 16,207 (2,888) 1,407 109,437 89,563
United States 0021,759 17,961 2,443 1,837 25,866 23,042 13,652 9,673 733 708 64,453 53,221
Mexico 00132 367 1,285 1,060 0000001,417 1,427
Other countries 0020,115 13,468 814 617 00477 1819 21,414 14,105
Total 58,711 55,253 69,203 44,769 9,074 7,237 25,866 23,042 36,014 25,881 (2,147) 2,134 196,721 158,316
*Restated to give effect to the current year’s organization structure.
(a) Harris in Canadian dollars based on Canadian GAAP including Harris Bankcorp, Inc.,
Harris Bankmont, Inc. (formerly Suburban Bancorp, Inc.), and the branches purchased
from Household Bank in 1996 and represents Harris Regional Banking which
excludes card services, operating services and HBIC, now included in Electronic
Financial Services.
(b) Support includes any residual revenues and expenses representing the difference
between actual amounts incurred and the amounts allocated to operating groups.
Basis of presentation of results of operating groups:
Expenses are matched against the revenues to which they relate. Indirect expenses, such
as overhead expenses and any revenue that may be associated thereto, are allocated
to the operating groups using appropriate allocation formulas applied on a consistent
basis. For each currency, funds are transferred from any group with a surplus to any group
with a shortfall at market rates for the currency and appropriate term. Segmentation
of assets by geographic region is based upon the ultimate risk of the underlying assets.
Segmentation
of net income is based upon the geographic location of the unit responsible
for managing
the related assets, liabilities, revenues and expenses.
Retail and Commercial Segment Contributes 74.2% of Net Income
While we manage the Bank relative to the operating groups as outlined below, it is also useful for us to review our performance relative to the major
customer or client segments we serve. We have defined the retail and
commercial segment to include those areas of the Bank which serve our
retail and commercial clients namely: Personal and Commercial Financial
Services, Electronic Financial Services, Harris Regional Banking, and
the
Private Client Division and Asset Management Services within
Invest-
ment and Corporate Banking. The institutional segment is comprised
of
Global Treasury and the remainder of Investment and Corporate Banking.
Net Income
($ millions)
For the year ended October 31 1997 % mix 1996 % mix 1995 % mix
Retail 968 74.2 951 81.4 829 84.0
Institutional 491 37.7 375 32.1 319 32.4
Support (b) (154) (11.9) (158) (13.5) (162) (16.4)
Total Bank 1,305 100.0 1,168 100.0 986 100.0