Bank of Montreal 2010 Annual Report Download - page 161

Notes
BMO Financial Group 193rd Annual Report 2010 159
Note 27: Related Party Transactions
Note 28: Contingent Liabilities
Related parties include directors, executives and their affiliates, along
with joint ventures and equity-accounted investees.
Directors, Executives and Their Affiliates
Loans are available to executives at preferred rates related to
transfers we initiate. The transferee loan amounts outstanding under
preferred rate mortgage loan agreements were $47 million and
$53 million at October 31, 2010 and 2009, respectively. The interest
earned on these loans is recorded in interest, dividend and fee
income in our Consolidated Statement of Income.
We provide certain banking services to our directors on the same
terms that we offer to our customers for these services. Loans to
directors totalled $26 million and $5 million at October 31, 2010 and
2009, respectively.
Board of Directors Compensation
Stock Option Plan
During the year ended October 31, 2002, we introduced a stock option
plan for non-officer directors, the terms of which are the same as
the plan for designated officers and employees described in Note 22.
Options to purchase a total of 147,000 common shares were granted
under the Non-Officer Director Stock Option Plan. The granting of options
under this plan was discontinued effective November 1, 2003.
Stock option expense for this plan is calculated in the same manner
as employee stock option expense. The expense related to this plan
was fully amortized prior to November 1, 2007.
Deferred Share Units
Members of our Board of Directors are required to take 100% of their
annual retainers and other fees in the form of either our common
shares (purchased on the open market) or deferred share units until
such time as the directors’ shareholdings are greater than six times
their annual retainers as directors. After this threshold is reached,
directors are required to take at least 50% of their annual retainers
in this form.
Members of the Harris Financial Corp. Board of Directors are
required to take a specified minimum amount of their annual retainers
and other fees in the form of deferred share units.
Deferred share units allocated under these deferred share unit
plans are adjusted to reflect dividends and changes in the market value
of our common shares. The value of these deferred share units is paid
upon termination of service as a director.
Liabilities related to these plans are recorded in other liabilities in
our Consolidated Balance Sheet and totalled $28 million and $22 million
as at October 31, 2010 and 2009, respectively. Expenses for these plans
are included in other expenses in our Consolidated Statement of Income
and totalled $4 million, $4 million and $4 million for the years ended
October 31, 2010, 2009 and 2008, respectively.
Joint Ventures and Equity-Accounted Investees
We provide banking services to our joint ventures and equity-accounted
investees on the same terms that we offer to our customers for these
services.
Our common share investment in a joint venture of which we own
50% totalled $366 million as at October 31, 2010 ($335 million in 2009),
which was eliminated upon proportionate consolidation.
Our investments in entities over which we exert significant influence
totalled $196 million as at October 31, 2010 ($613 million in 2009).
Employees
A select suite of customer loan and mortgage products is offered to
employees at rates normally accorded to preferred customers. We also
offer employees a fee-based subsidy on annual credit card fees.
(a) Legal Proceedings
In the bankruptcy of Adelphia Communications Corporation (“Adelphia”),
the Official Committees of Unsecured Creditors and Equity Security Holders
or their successor, the Adelphia Recovery Trust (“ART”), filed a Complaint
against Bank of Montreal, BMO Capital Markets Corp. (previously Harris
Nesbitt Corp.), BMO Capital Markets Financing Inc. (the “BMO Defendants”),
and other financial institutions. The Complaint alleged various federal
statutory and common law claims and sought damages of approximately
$5 billion. The action brought by the ART was settled during the year
ended October 31, 2010 as against many financial institutions, including
the BMO Defendants. A separate action brought by a group of plaintiffs
that opted out of the settlement of a class action brought by investors
in Adelphia securities remains pending against BMO Capital Markets Corp.
and Bank of Montreal. Management believes that there are strong
defences to this claim and will vigorously defend the action.
BMO Nesbitt Burns Inc., an indirect subsidiary of Bank of Montreal,
has been named as a defendant in several individual actions and
proposed class actions in Canada and the United States brought on
behalf of shareholders of Bre-X Minerals Ltd. Many of the actions have
been resolved as to BMO Nesbitt Burns Inc., including two during the
year ended October 31, 2010. Management believes that there are strong
defences to the remaining claims and will vigorously defend them.
Following our disclosures of mark-to-market losses in our commod-
ities trading businesses on April 27, 2007 and May 17, 2007 aggregating
$680 million (pre-tax) as of April 30, 2007, we have received inquiries,
requests for documents or subpoenas pertaining to those trading losses
from securities, commodities, banking and law enforcement authorities.
On November 18, 2008, a number of proceedings were commenced
by these authorities against certain parties that were involved in the
commodities trading losses. We are not a party to these proceedings.
We are cooperating with all of these authorities.
Bank of Montreal and its subsidiaries are party to other legal
proceedings, including regulatory investigations, in the ordinary course
of their businesses. While there is inherent difficulty in predicting the
outcome of these proceedings, management does not expect the out-
come of any of these other proceedings, individually or in the aggregate,
to have a material adverse effect on the consolidated finan cial position
or the results of operations of Bank of Montreal.
(b) Collateral
When entering into trading activities such as reverse repurchase
agreements, securities borrowing and lending activities or financing and
derivative transactions, we require our counterparty to provide us with
collateral that will protect us from losses in the event of the counter-
party’s default. The fair value of collateral that we are permitted to sell
or repledge (in the absence of default by the owner of the collateral)
was $32,837 million as at October 31, 2010 ($21,905 million in 2009).
The fair value of financial assets accepted as collateral that we have sold
or repledged was $24,733 million as at October 31, 2010 ($15,479 million
in 2009).