Bank of Montreal 1999 Annual Report Download - page 63

Bank of Montreal Group of Companies 1999 Annual Report 57
Financial Results
Net income in the Investment Banking Group was $426 million for the year, an
increase of $85 million or 24.9% from the prior year. During the year, Nesbitt Burns
changed its year end, resulting in the inclusion of one additional month of results in
1999 compared to 1998. The inclusion of the extra month of results accounts for an
additional $37 million in revenues and $20 million in expenses, with a positive net
income impact of $9 million. Excluding the impact of the extra month, revenues were
up by $264 million or 18.0% year over year, while expenses increased by $67 million
or 7.6%. Revenue growth, excluding the extra month, was a result of volume growth
and a return to more normal capital market conditions from those experienced in the
fourth quarter of 1998, which resulted in higher trading revenues. Revenues were
impacted by growth in corporate lending volumes and spreads, partially offset by the
effects of lower primary market activities in new issues and mergers and acquisitions
and lower net gains (losses) on securities.
The provision for credit losses increased $87 million from a recovery of $16 million
in 1998 to an expense of $71 million in 1999, representing a return to more normal
levels following unusually high recoveries last year.
Expense growth of $67 million, excluding the extra month, was driven largely by
revenue-based compensation costs.
In 1998 net income was $341 million, a decrease of $77 million or 18.4% from 1997.
Revenues decreased 4.3% in 1998 as a result of abnormal market conditions, principally
in our North American debt securities portfolios. Non-interest expense increased
9.5% in 1998 due to higher infrastructure costs, including Year 2000 expenditures,
which were partially offset by decreased revenue-driven compensation.
Investment Banking Group ($ millions except as noted)
As at or for the year ended October 31 1999 1998* 1997*
Net interest income 877 669 602
Other income 887 794 926
Total Revenue 1,764 1,463 1,528
Provision for credit losses 71 (16) 2
Non-interest expense 972 885 808
Income before taxes and goodwill 721 594 718
Income taxes 288 246 293
Goodwill, net of applicable tax 777
Net Income 426 341 418
Average assets 115,512 123,264 100,954
Average current loans 53,559 48,884 37,676
Securities purchased under resale agreements 29,114 27,177 21,412
Average deposits 55,296 62,270 47,840
Assets under administration 4,102 4,089 NA
Assets under management 2,907 2,674 1,417
Full-time equivalent staff 1,944 2,117 2,511
Expense-to-revenue ratio (%) 55.1 60.5 51.8
*Restated to give effect to the current year’s organization structure and presentation changes
NA – Not available
Outlook
Canada’s capital markets are expected to experience greater volatility in 2000 than in 1999 owing
to growing concerns about inflation trends in the United States. Debt markets are expected to
weaken amid moderate increases in interest rates in both Canada and the United States. Investment
banking activity should remain firm in 2000. Business investment is expected to remain strong,
thereby supporting the Bank’s debt underwriting. As well, a rising stock market should lend support
to equity underwriting. Bank lending to corporations should remain healthy in 2000, though
somewhat softer than 1999. This reflects a view that the economy will grow at an above-average
pace next year, though at a more moderate pace than this year. As a result of these economic
considerations, the Investment Banking Group has made the organizational changes required to
maintain current financial performance levels into 2000.
Leading Institutional
Equity Market Share
11.7
12.5
11.7
12.5
13.0
9998979695
(%)
Underwriting
Market Share
9998979695
(%)
Nesbitt Burns
CIBC World Markets
RBC Dominion Securities
ScotiaMcLeod
14.7
15.6 15.1
12.2
15.1