Bank of Montreal 1998 Annual Report Download - page 92

(b) Lease Commitments
We have entered into a number of non-cancellable leases for prem-
ises and equipment in order to conduct business. Our total contrac-
tual rental commitments outstanding as at October 31, 1998 are
$819. The commitments for each of the next five years are $146 for
1999, $123 for 2000, $104 for 2001, $80 for 2002 and $366 for 2003
and thereafter. Included in these amounts are the commit ments
related to 686 leased Bank branch locations as at October 31,
1998.
Net rent expense for premises and equipment reported in our
Consolidated Statement of Income was $168 for 1998, $166 for 1997
and $156 for 1996.
(c) Legal Proceedings
Nesbitt Burns Inc., an indirect subsidiary of Bank of Montreal, has
been named as a defendant in several class and individual actions in
Canada and a class action in the United States brought on behalf
of shareholders of Bre-X Minerals Ltd. (“Bre-X”). Other defendants
named in one or more of these actions include Bre-X, officers and
directors of Bre-X, mining consulting firms retained by Bre-X, Bre-X’s
financial advisor and brokerage firms which sold Bre-X common
stock. The actions are largely based on allegations of negligence,
negligent or fraudulent misrepresentation and breaches of the
Securities Exchange Act of 1934 (U.S. only), in connection with the
sale of Bre-X securities. All of the actions are at a very preliminary
stage. Based upon information presently available, counsel for
Nesbitt Burns Inc. are not in a position to express an opinion as to
the likely outcome of any of these actions. Management is of the
view that the Company has strong defences and will vigorously
defend against all such actions.
The Bank and its subsidiaries are party to other legal proceedings
in the ordinary course of its business. Management does not expect
the outcome of any of these other proceedings, individually or in
the aggregate, to have a material adverse effect on the consolidated
financial position or results of the Bank’s operations.
(d) Year 2000
Many computer systems process data based on storing two digits
for the year of a transaction rather than all four digits. Systems that
process year 2000 data with the year “00” may encounter
sig-
nificant processing inaccuracies and even inoperability before, on
or after January 1, 2000. We have undertaken an enterprise-wide
initiative to address the year 2000 issue and are implementing a
comprehensive plan to prepare, as appropriate, our date-sensitive
systems to recognize the change. However, it is not possible to be
sure that all aspects of the year 2000 issue that may affect us,
including those related to the efforts of customers, suppliers or
other third parties with whom we conduct business, will not have a
material impact on our operations.
(e) Pledged Assets
In the normal course of our business, we pledge assets as security
for various liabilities that we incur. We had pledged investment and
trading account securities and other assets totalling $39,097 as
at October 31, 1998 and $35,879 as at October 31, 1997 as security
for call loans, securities sold but not yet purchased, securities sold
under repurchase agreements and other secured liabilities. Addition-
ally, we had deposited assets in the amount of $2,013 as at October 31,
1998 and $317 as at October 31, 1997 to act as security for our
84
BANK OF MONTREAL GROUP OF COMPANIES
NOTE 20 CREDIT COMMITMENTS AND CONTINGENT LIABILITIES
(a) Credit Instruments
As a part of our business, we enter into various commitments to
provide our customers with sources of credit. These commitments
include:
■Guarantees and standby letters of credit which represent our
obligation to make payments to third parties on behalf of our
customers if our customers are unable to make the required pay-
ments or meet other contractual requirements;
■Securities lending which represents our credit exposure when we
lend our securities, or our customers’ securities, to third parties;
■Documentary and commercial letters of credit which represent
our agreement to honour drafts presented by a third party upon
completion of specific activities;
■Commitments to extend credit to our customers in the form of
loans or other financings for specific amounts and maturities,
subject to meeting certain conditions;
■Note issuance and revolving underwriting facilities and similar
arrangements, including facilities under which we acquire short-
termnotesissuedbyourcustomersforapredeterminedpriceinthe
event that the customer is unable to sell the notes to third parties.
In making these commitments, we expose ourselves to credit risk,
being the risk that we may incur a loss if a counterparty fails to meet
its obligations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized below is our contractual and risk-weighted equivalent value of our various commitments, which are based on the rules ofcapi-
tal adequacy of the Superintendent of Financial Institutions Canada. The risk-weighted equivalent value is used in the ongoing assessment
of our capital adequacy ratios.
1998 19 97
Contract Risk-weighted Contract Risk-weighted
amount equivalent amount equivalent
Credit Instruments
Guarantees and standby letters of credit $ 14,006 $ 9,385 $ 10,562 $ 7,468
Securities lending 12,757 567 13,547 1,454
Documentary and commercial letters of credit 812 120 1,637 290
Commitments to extend credit:
Original maturity of one year and under 59,972 – 39,474 –
Original maturity of over one year 34,890 16,737 32,813 15,959
Note issuance and revolving underwriting facilities 63 6 ––
To t a l $ 122,500 $ 26,815 $ 98,033 $ 25,171
Commitments to extend credit in respect of consumer instalment and credit card loans are excluded as the lines are revocable at our discretion.