Bank of Montreal 2003 Annual Report Download - page 43

44%, benefiting from selective expansion into new products and
trading strategies that related to our areas of expertise and the
expanded application of our taxable equivalent basis account-
ing, as explained on page 22. Commodities derivatives trading
revenue was also up sharply, due to the gain on termination
of certain positions with a counterparty which, as explained
in Note 25 on page 97 to the financial statements, has initiated
legal action in connection with the termination. Merger and
acquisition revenues were up modestly. Interest income was
lower due to the narrowing of spreads earned as higher-yielding
assets mature, reflecting a flatter yield curve environment.
Corporate lending volumes were also lower due to the weaker
business environment and our strategy of exiting non-core
lending relationships.
The provision for credit losses was essentially unchanged from
a year ago at $231 million. While BMO’s provisions for credit
losses were down substantially from a year ago, BMO’s practice
is to charge loss provisions to the client operating groups each
year using an expected loss provision methodology based on
the group’s share of expected credit losses over an economic
cycle. Corporate Support is charged for differences between
expected loss provisions charged to the client groups and pro-
visions required under GAAP.
Non-interest expenses were $49 million or 3% lower than in
2002, despite the inclusion of expenses related to Harris Nesbitt
Gerard. In 2003, the lower value of the U.S. dollar reduced
expenses by $51 million. Employee costs were down from the
prior year because of reductions in performance-based com-
pensation and staffing levels. Premises and other expenses were
also lower.
The acquisition of Gerard Klauer Mattison in the latter part
of 2003 added $17 million to the group’s revenue and $26 million
in costs.
Net income from U.S. operations represented 37% of group net
income for the year, compared with 57% in 2002. The negative
effects of economic uncertainty on client transaction volumes
and the weakness in the U.S. dollar that persisted through 2003
contributed to the reduction. Improved performance from Cana-
dian operations also affected U.S. operations’ share of group net
income in 2003.
Our U.S. investment banking operations are primarily directed
at mid-market corporations having revenues that range from
US$50 million to US$1 billion. In 2003, the revenue from our
mid-market portfolio represented 22% of total group revenue
and 44% of our U.S. revenue. Often such activities are included in
personal and commercial banking units by our North American
peers. Pro-forma results, reflecting our U.S.-based mid-market
business as part of Personal and Commercial Client Group, are
included on page 32.
Investment Banking Group ($ millions, except as noted)
As at or for the year ended October 31 2003 2002 2001
Net interest income (teb) 1,394 1,480 1,445
Non-interest revenue 1,262 1,068 1,301
Total revenue (teb) 2,656 2,548 2,746
Provision for credit losses 231 227 528
Non-interest expense 1,367 1,416 1,507
Income before income taxes, non-controlling
interest in subsidiaries and goodwill amortization 1,058 905 711
Income taxes (teb) 336 304 246
Amortization of goodwill, net of applicable
income taxes –– 7
Net income 722 601 458
Amortization of goodwill and
intangible assets (after tax) –– 7
Cash net income 722 601 465
Net economic profit 179 6(67)
Return on equity (%) 14.4 10.6 8.9
Cash return on equity (%) 14.4 10.6 9.0
Non-interest expense-to-revenue ratio (%) 51.5 55.6 54.9
Cash non-interest expense-to-revenue ratio (%) 51.5 55.6 54.9
Average net interest margin (%) 0.97 1.08 1.04
Average common equity 4,637 5,112 4,487
Average assets 144,449 136,487 138,435
Total risk-weighted assets 50,823 55,493 67,532
Average current loans 43,363 49,212 57,441
Average deposits 59,136 57,719 63,823
Assets under administration 71,098 71,833 84,317
Assets under management 20,013 20,283 16,485
Full-time equivalent staff 2,197 2,136 2,192
20032002200120001999
Canadian M&A Activity
(for the 12 months ended September)
140
1,295
995
860
136
94
1,246
270
90
802
Number of deals
Value of deals ($ billions)
200320022001
ROE (%)
8.9
10.6
14.4
200320022001
U.S. Contribution to
IBG Revenue (%)
54
46
55
45 49
51
Canada/other
United States
200320022001
Risk-Weighted Assets ($ billions)
67.5
55.5 50.8
BMO Financial Group 186th Annual Report 2003 39