Bank of Montreal 2013 Annual Report Download - page 20

Level of Competition
The level of competition among financial services companies is high.
Furthermore, non-financial companies have increasingly been offering
services traditionally provided by banks. Customer loyalty and retention
can be influenced by a number of factors, including service levels, prices
for products or services, our reputation and the actions of our com-
petitors. Also, laws and regulations enacted by regulatory authorities in
the United States and other jurisdictions in which we operate may
provide benefits to our international competitors that could affect our
ability to compete. Changes in these factors or any subsequent loss of
market share could adversely affect our earnings.
Currency Rates
The Canadian dollar equivalents of our revenues, expenses, assets and
liabilities denominated in currencies other than the Canadian dollar are
subject to fluctuations in the value of the Canadian dollar relative to
those currencies. Changes in the value of the Canadian dollar relative to
the U.S. dollar may also affect the earnings of our small business, corpo-
rate and commercial clients in Canada. A strengthening of the U.S. dollar
could increase our risk-weighted assets, lowering our capital ratios.
Refer to the Foreign Exchange section on page 38, the Enterprise-Wide
Capital Management section on page 61 and the Market Risk section on
page 87 for a more complete discussion of our foreign exchange risk
exposures.
Changes to Our Credit Ratings
Credit ratings are important to our ability to raise both capital and
funding to support our business operations. Maintaining strong credit
ratings allows us to access the capital markets at competitive pricing.
Should our credit ratings experience a material downgrade, our costs of
funding would likely increase significantly and our access to funding and
capital through capital markets could be reduced. A material downgrade
of our ratings could also have other consequences, including those set
out in Note 10 on page 147 of the financial statements.
Operational and Infrastructure Risks
We are exposed to many of the operational risks that affect large enter-
prises conducting business in multiple jurisdictions. Such risks include the
risk of fraud by employees or others, unauthorized transactions by
employees, and operational or human error. We face the risk of loss due to
cyber attack and also face the risk that computer or telecommunications
systems could fail, despite our efforts to maintain these systems in good
working order. Some of our services (such as online banking) or operations
may face the risk of interruption or other security risks arising from the risks
related to the use of the internet in these services or operations, which
may impact our customers and infrastructure. Given the high volume of
transactions we process on a daily basis, certain errors may be repeated or
compounded before they are discovered and rectified. Shortcomings or
failures of our internal processes, employees or systems, or those provided
by third parties, including any of our financial, accounting or other data
processing systems, could lead to financial loss and damage to our reputa-
tion. In addition, despite the contingency plans we have in place, our ability
to conduct business may be adversely affected by a disruption in the infra-
structure that supports both our operations and the communities in which
we do business, including but not limited to disruption caused by public
health emergencies or terrorist acts. Refer to the Information and Cyber
Security Risk section on page 79 for more information.
Judicial or Regulatory Judgments and Legal and
Regulatory Proceedings
We take reasonable measures to comply with the laws and regulations
of the jurisdictions in which we conduct business. Should these meas-
ures prove not to be effective, it is possible that we could be subject
to a judicial or regulatory judgment or decision which results in fines,
damages, other costs or restrictions that would adversely affect our
earnings and reputation. We are also subject to litigation arising in the
ordinary course of our business. The unfavourable resolution of any
litigation could have a material adverse effect on our financial results.
Damage to our reputation could also result, harming our future busi-
ness prospects. Information about certain legal and regulatory pro-
ceedings we currently face is provided in Note 28 on page 177 of the
financial statements.
Critical Accounting Estimates and Accounting Standards
We prepare our financial statements in accordance with IFRS. Changes
by the International Accounting Standards Board to international finan-
cial accounting and reporting standards that govern the preparation of
our financial statements can be difficult to anticipate and may materially
affect how we record and report our financial results. Significant
accounting policies and future changes in accounting policies are dis-
cussed in Note 1 on page 130 of the financial statements.
The application of IFRS requires that management make significant
judgments and estimates that can affect when certain assets, liabilities,
revenues and expenses are recorded in our financial statements and
their recorded values. In making these judgments and estimates, we
rely on the best information available at the time. However, it is
possible that circumstances may change or new information may
become available.
Our financial results would be affected in the period in which any
such new information or change in circumstances became apparent, and
the extent of the impact could be significant. More information is
included in the discussion of Critical Accounting Estimates on page 70.
Accuracy and Completeness of Customer and
Counterparty Information
When deciding to extend credit or enter into other transactions with
customers and counterparties, we may rely on information provided by
or on behalf of those customers and counterparties, including audited
financial statements and other financial information. We also may rely
on representations made by customers and counterparties that the
information they provide is accurate and complete. Our financial
results could be adversely affected if the financial statements or other
financial information provided by customers and counterparties is
materially misleading.
Other Factors
Other factors beyond our control that may affect our future results are
noted in the Caution Regarding Forward-Looking Statements on page 29.
We caution that the preceding discussion of factors that may affect
future results is not exhaustive. When relying on forward-looking state-
ments to make decisions with respect to BMO, investors and others
should carefully consider these factors, as well as other uncertainties,
potential events and industry and company-specific factors that may
adversely affect future results. We do not undertake to update any
forward-looking statements, whether written or oral, that may be made
from time to time by us or on our behalf, except as required by law.
MD&A
BMO Financial Group 196th Annual Report 2013 31