Bank of Montreal 2012 Annual Report Download - page 30

MD&A
oEnhanced our wealth management and alternative investment
research capabilities with the acquisition of CTC Consulting,
complementing our award-winning mutual fund and retirement
services platforms.
oFilled a number of key roles, including a new Head of U.S. Anti-
Money Laundering and a Chief Regulatory Officer responsible for
providing leadership on emerging legislative and regulatory
developments.
‰Introduced attractive new offers in Canada to establish and
strengthen client relationships:
oPromoted our award-winning mortgage product, helping Canadians
become mortgage-free faster, pay less interest and protect them-
selves against rising interest rates. With the success of this product,
we’ve seen strong customer acquisition.
oLaunched our Open for Business campaign, making up to $10 billion
of financing available to Canadian businesses over three years to
assist their businesses, helping them improve productivity and
expand into new markets.
4. Expand strategically in select global markets to create future
growth.
‰Only Canadian bank and one of only three North American banks with
an established subsidiary bank in China.
‰Continued to build our Asian wealth management platform through
the acquisition of a 19.9% equity interest in COFCO Trust Co., in a
rapidly growing area of the wealth management market, and agreed
to acquire a wealth management business in Hong Kong and Singa-
pore.
‰Grew Trade Finance and International Financial Institutions business
substantially, supported by shifts in the global credit environment.
5. Ensure our strength in risk management underpins everything
we do for our customers.
‰Reinforced our risk culture, focusing on risk independence and our
three-lines-of-defence approach to managing risk across the
enterprise.
‰Executed a formalized risk practice benchmarking program to assess
our processes, identify best practices and implement enhancements
in high-priority risk areas.
‰Developed and implemented risk appetite and performance metrics
at the line of business level and integrated them into our strategic
planning process.
‰Launched an effort to upgrade our risk technology infrastructure to
provide data and tools that will support enhanced risk management
capabilities.
‰Proactively managed our businesses to understand and address the
impact of regulatory changes.
Caution Regarding Forward-Looking Statements
Bank of Montreal’s public communications often include written or oral forward-looking statements. Statements of this type are included in this Annual Report, and may
be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made
pursuant to the “safe harbor” provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995
and any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities
for 2013 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or
for the Canadian and U.S. economies.
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that
predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from
such predictions, forecasts, conclusions or projections. We caution readers of this Annual Report not to place undue reliance on our forward-looking statements as a
number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in
the forward-looking statements.
The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market
conditions in the countries in which we operate; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary,
fiscal or economic policy; the degree of competition in the geographic and business areas in which we operate; changes in laws or in supervisory expectations or
requirements, including capital, interest rate and liquidity requirements and guidance; judicial or regulatory proceedings; the accuracy and completeness of the information
we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting
estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks; changes to our credit
ratings; general political conditions; global capital markets activities; the possible effects on our business of war or terrorist activities; disease or illness that affects local,
national or international economies; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; techno-
logical changes; and our ability to anticipate and effectively manage risks associated with all of the foregoing factors.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the
discussion below, which outlines in detail certain key factors that may affect Bank of Montreal’s future results. When relying on forward-looking statements to make
decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the
inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statements, whether written or oral, that may be
made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the
purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and
objectives, and may not be appropriate for other purposes.
In calculating the pro-forma impact of Basel III on our regulatory capital, risk-weighted assets (including Counterparty Credit Risk and Market Risk) and regulatory
capital ratios, we have assumed that our interpretation of OSFI’s draft implementation guideline of rules and amendments announced by the Basel Committee on Banking
Supervision (BCBS) as of this date, and our models used to assess those requirements, are consistent with the final requirements that will be promulgated by the Office of
the Superintendent of Financial Institutions Canada (OSFI). We have also assumed that the proposed changes affecting capital deductions, risk-weighted assets, the regu-
latory capital treatment for non-common share capital instruments (i.e. grandfathered capital instruments) and the minimum regulatory capital ratios will be adopted by
OSFI as proposed by BCBS, unless OSFI has expressly advised otherwise. We have also assumed that existing capital instruments that are non-Basel III compliant but are
Basel II compliant can be fully included in the October 31, 2012, pro-forma calculations. The full impact of the Basel III proposals has been quantified based on our financial
and risk positions at year end or as close to year end as was practical. In setting out the expectation that we will be able to refinance certain capital instruments in the
future, as and when necessary to meet regulatory capital requirements, we have assumed that factors beyond our control, including the state of the economic and capital
markets environment, will not impair our ability to do so.
Assumptions about the level of asset sales, expected asset sale prices, net funding cost, credit quality, risk of default and losses on default of the underlying assets of
the structured investment vehicle were material factors we considered when establishing our expectations regarding the structured investment vehicle discussed in this
Annual Report, including the adequacy of first-loss protection. Key assumptions included that assets will continue to be sold with a view to reducing the size of the struc-
tured investment vehicle, under various asset price scenarios, and that the level of default and losses will be consistent with the credit quality of the underlying assets and
our current expectations regarding continuing difficult market conditions.
Assumptions about the level of default and losses on default were material factors we considered when establishing our expectations regarding the future perform-
ance of the transactions into which our credit protection vehicle has entered. Among the key assumptions were that the level of default and losses on default will be
consistent with historical experience. Material factors that were taken into account when establishing our expectations regarding the future risk of credit losses in our
credit protection vehicle and risk of loss to BMO included industry diversification in the portfolio, initial credit quality by portfolio, the first-loss protection incorporated into
the structure and the hedges that BMO has entered into.
Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on our business, are
material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth,
both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies. See
the Economic Developments section of this Annual Report.
BMO Financial Group 195th Annual Report 2012 27