Bank of Montreal 1998 Annual Report Download - page 36

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BANK OF MONTREAL GROUP OF COMPANIES
The reduction in trading revenue and capital market fees reflected the impact of unusual
market conditions in the fourth quarter.
Total trading revenue includes the net interest and other income derived from on- and off-
balance
sheet positions considered by management to be undertaken for trading purposes.
This includes revenue from interest on balance sheet loans and securities and off-balance sheet
interest rate, foreign exchange (including spot positions), commodity and equity contracts.
Total revenue from trading-related activities decreased by 57.4% in 1998 compared to an
8.8% increase in 1997. Lower trading revenues were due to trading losses incurred in the
fourth quarter, primarily in the Bank’s corporate debt securities portfolios (as reported in
our Investment and Corporate Banking section on page 39). These were partly offset by
increased revenues in derivatives, foreign exchange and managed futures trading.
INTEREST AND NON-INTEREST TRADING REVENUE ($ millions)
For the three
months ended For the year ended October 31
October 31, 1998 1998 1997*1996*19 95*1994*
Investment and Corporate Banking
Total Trading – Global Financial
Products (derivatives) 27 85 52 42 17 36
– Foreign Exchange 19 114 92 83 56 35
– Global Distribution Trading (68) (61) 16210
– Institutional Equities,
Fixed Income & Other
Proprietary Trading (91) (21) 113 105 137 143
Total Trading – Other (26) (12) 11 25 6 7
Tot al (139) 105 284 257 217 221
Portfolio and Risk Management Group
Total Trading – Collateralized Bond Obligations (28) (9) 6 (4) (1) (7)
Harris Regional Banking
Total Trading 12 37 22 33 32 35
(155) 133 312 286 248 249
Total Bank
Net interest income 21 93 36 9 23 23
Other income – Trading income (176) 40 276 277 225 226
Tot al (155) 133 312 286 248 249
*Reclassified to conform with the current year’s presentation.
In 1997 other income increased 18.5%, or $465 million. This was primarily due to higher
capital market fees, increased investment management and custodial fees and higher mutual
fund revenues. The increase in capital market fees was a reflection of the continued strong
capital markets in North America, which saw increased issue activity and secondary trading
volumes. Increased investment management and custodial fees, and mutual fund revenues,
were the result of 45.4% growth in assets under management and a 17.9% increase in assets
under administration.
REVENUE GROWTH
9897969594
OTHER INCOME AS A %
OF TOTAL REVENUE
42.9
41.6
40.4
37.1
36.0
OUTLOOK
Revenue growth in 1998 of 1.4% was lower than growth in 1997, primarily because of the material,
negative impact of unusual market conditions in the fourth quarter. In 1999 we expect revenue
growth to be higher than in 1998, but we believe that this growth will be affected by the anticipated
slower growth in the economy. Management will continue to focus on areas of our business that
present the highest potential for growth in shareholder value.
28