Bank of Montreal 1998 Annual Report Download - page 50

FINANCIAL RESULTS
P&RMG’s net income of $238 million was down 18.9% from 1997, caused largely by lower
revenues. Decreases in revenue were due to lower cash collections on impaired loans of
$75 million. Revenues earned from the equities and bonds of lesser-developed countries
slowed in the current year to $17 million compared to $121 million in 1997. Revenues from
these sources continue to decline due to reduced exposure in these portfolios. These lower
revenues were partially offset by higher revenues from the corporate asset portfolio, includ-
ing trade finance.
Expenses decreased 17.8% in the current year due to the reorganization that resulted from
our credit process redesign. The lower provision for credit losses is the result of higher
recoveries in 1998.
P&RMG’s expense-to-revenue ratio increased to 28.3% in 1998 from 27.2% in 1997. This
resulted from the 21.0% decrease in revenues, exceeding the decrease in expenses.
Net income of $293 million in 1997 was driven by significant revenue growth from cash
collections on impaired loans, due to the improved North American economy, and also by
increased revenue from equities and bonds of lesser-developed countries.
PORTFOLIO AND RISK MANAGEMENT GROUP ($ millions except as noted)
As at or for the year ended October 31 1998 1997*1996*1995*1994*
Net interest income 469 572 403 408 439
Other income 91 138 145 121 143
Provision for credit losses (16) 2 (22) (22) 277
Non-interest expense 158 193 147 149 130
Income before taxes 418 515 423 402 175
Income taxes 180 222 182 173 78
Net income 238 293 241 229 97
Average assets 30,492 22,658 18,354 17,954 15,955
Average assets, including guarantees
and standby letters of credit †40,299 30,045 22,863 22,001 19,407
Average current loans 18,021 12,969 11,324 11,245 10,104
Average deposits 1,611 1,132 328 106 114
Assets under administration 4,089 na na na na
Assets under management 2,674 1,417 na na na
Full-time equivalent staff (a) 494 429 NA NA NA
Expense-to-revenue ratio (%) 28.3 27.2 26.9 28.2 22.3
*Restated to give effect to the revised 1998 organization structure
(a) As at October 31
na – Not applicable
NA – Not available
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BANK OF MONTREAL GROUP OF COMPANIES
PORTFOLIO AND RISK MANAGEMENT GROUP
Built our CBO Portfolio to over US$2 Billion
■A second collateralized bond obligation deal (referred to
as FC CBO II) for US$1 billion closed in 1998, adding to
the first US$1 billion (FC CBO) established last year. At
present, the CBO portfolio has just over US$2 billion in
assets under management, which ranks the CBO Group
among the largest high-yield managers in Canada and
among the Top 25 in the world. In the first year the group
generated returns approximately 100 basis points higher
than all published high-yield indices, which would rank
in the top quartile of all funds that publish their results.
Leveraged Process Improvements
■
Commenced implementation of a credit process redesign
in 1998. Thefirstphaseofonecomponentofthis
redesign, referred to as the Bank Model, streamlined
the credit approval process for financial institutions.
The initiatives accompanying this Model improved
cycle and response times dramatically and reduced
infrastructure costs while enabling relationship man-
agers to focus on serving client needs. These benefits
have been attained while maintaining risk levels within
appropriate parameters.
■
Responded to the needs of large and smaller exporters in
North America by providing risk mitigation and financing
for their sales to dynamic and complex international mar-
kets during a period of increased economic uncertainty.
Retained, Attracted and Developed Teams of Professionals
■Market-competitive compensation plans for all groups
in P&RMG have been developed to augment the perfor-
mance measurement and reward process for employees.
An executive has been appointed to develop the neces-
sary learning programs to achieve best-in-class status.
†Defined in the Glossary on page 92