Bank of Montreal 2002 Annual Report Download - page 49

BMO FINANCIAL GROUP ANNUAL REPORT 2002 45
Financial Results
Investment Banking Group net income rose $115 million or 24%.
Excluding a write-down of $178 million ($105 million after tax)
in the group’s equity investment in its own CBOs in 2001, which
was categorized as a non-recurring item for reporting purposes,
net income for fiscal 2002 improved by $10 million to $592 mil-
lion. There were no non-recurring items in 2002. Difficult capital
markets and credit conditions created a much more challenging
environment in 2002. The improvement in this year’s net income
was reflective of a significantly lower provision for credit losses,
which was primarily due to a change in BMO’s loan loss alloca-
tion methodology, as discussed below.
Revenue declined $263 million to $2,534 million. Excluding
non-recurring items, revenue declined $441 million or 15%. Weak
North American economic and credit environments contributed
to a general downturn in investment banking fees and downward
pressure on corporate lending volumes. Trading-related revenue
declined $204 million to $383 million, having been particularly
robust in 2001. Net investment securities losses totalled $142 mil-
l
ion in 2002, including final CBO write-downs of $103 million,
compared with net losses of $195 million in 2001. Notwithstand-
ing the challenging business and market environments, revenue
benefited from strong restructuring activity and income trust
origination in Investment and Corporate Banking, from increased
spreads in our interest-rate-sensitive businesses in Capital Mar-
kets and from strong fee-based revenue growth in Securitization
and Credit Investment Management.
Provisions for credit losses declined $318 million to $227 mil-
lion in 2002. In 2002, the provision for credit losses was based on
expected losses over an economic cycle. Corporate Support is
charged for differences between expected loss provisions charged
to the client groups and provisions required under GAAP. As
explained more fully on page 48, in 2001 there were some differ-
ences in how loan loss provisions were charged to client groups
and to Corporate Support. Accordingly, the provision for credit
losses should be considered in conjunction with provisions
charged to Corporate Support for comparative purposes.
Non-interest expenses were reduced $91 million or 6%, largely
due to a reduction in performance-based compensation and a
disciplined approach to cost management. These improvements
were partly offset by severance costs in 2002.
2001 Compared with 2000
Net income in 2001 was $477 million, a decrease of $207 million.
Excluding the write-down of equity investments in our own
CBOs, net income was $582 million, or $102 million below 2000.
Revenue increased 4% but excluding non-recurring items, rev-
enue rose $278 million or 10%, driven by significantly improved
results in Capital Markets, which benefited from interest rate
reductions and improved client-driven trading activity. Strong
dividend income, securitization fees and increased loan spreads
also contributed to the increase. Merger and acquisition activi-
ties, new issue activities and equity market volumes all declined
in the weaker business environment. The provision for credit
losses increased $389 million due to the effect of deteriorating
economic conditions in North America on our U.S. mid-market
corporate and Canadian portfolios. Expenses increased $96 mil-
lion or 7% due to higher performance-based compensation and
increased employee costs.
Investment Banking Group ($ millions, except as noted)
Reported (As at or for the year ended October 31) 2002 2001 2000
Net interest income (teb) 1,466 1,497 1,320
Non-interest revenue 1,068 1,300 1,377
Total revenues (teb) 2,534 2,797 2,697
Provision for credit losses 227 545 156
Non-interest expense 1,421 1,512 1,416
Income before provision for income taxes,
non-controlling interest in subsidiaries
and goodwill amortization 886 740 1,125
Income taxes (teb) 294 256 434
Amortization of goodwill, net of
applicable income taxes – 7 7
Net income 592 477 684
Net economic profit (3) (50) 160
Cash return on equity (%) 10.4 9.4 14.8
Average net interest margin (%) 1.04 1.03 0.92
Non-interest expense-to-revenue ratio (%) 56.1 54.1 52.5
Average common equity 5,112 4,509 4,216
Average assets 140,760 145,092 143,259
Total risk-weighted assets 55,933 68,545 75,316
Average current loans 49,810 58,318 60,052
Average deposits 58,798 64,950 73,810
Assets under administration 71,833 84,317 75,644
Assets under management 20,283 16,485 11,404
Full-time equivalent staff 2,140 2,158 2,136
Excluding non-recurring items
Total revenues (teb) 2,534 2,975 2,697
Net income 592 582 684
Cash return on equity (%) 10.4 11.7 14.8
Non-interest expense-to-revenue ratio (%) 56.1 50.8 52.5
U.S. Contribution to 
IBG Net Income (%)
200220012000
60
53
47
North American Equity 
Underwriting – Canadian 
Issuers ($ billions)
200220012000
34
25
24
15
27
14
Market BMO NB participation
Canadian M&A Activity
(for the 12 months ended September)

2002200120001999
1,295
1,180
154 140
270
995
860
1,246
136
90
1998
Value of deals ($ billions)
Number of deals
Market Share of Canadian 
Equity Block Trading Volume (%)
12.04 12.68
11.17
200220012000
CIBC
UBS
TD
Scotia
RBC
BMO NB