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Management’s Discussion and Analysis
52 BMO Financial Group 190th Annual Report 2007
MD&A
BMO Capital Markets (BMO CM) combines all of our businesses serving
a broad range of corporate, institutional and government clients
in Canada and the United States. We also serve clients in the United
Kingdom, Europe, Australia/Asia and South America.
BMO Capital Markets offers complete financial solutions, drawing
upon our expertise in areas including equity and debt underwriting,
corporate lending and project financing, mergers and acquisitions
advisory services, merchant banking, securitization, treasury and
market risk management, foreign exchange, derivatives, debt and
equity research and institutional sales and trading.
Vision
To be recognized by clients and shareholders as the best and most
disciplined integrated North American investment and corporate bank
in our markets.
Strategies
•Continue to reinforce our leading position in Canada.
•Accelerate growth in the United States.
•Continue to improve the profitability of client relationships.
Our Lines of Business
Investment and Corporate Banking services include strategic advice
on mergers and acquisitions, restructurings and recapitalizations, as well
as providing valuation and fairness opinions. We provide capital-raising
services through debt and equity underwriting. We also provide a full
range of loan and debt products, balance sheet management solutions
and treasury management services. In support of our clients’ inter-
national business activities, we provide trade finance and risk mitigation
services. We also offer a wide range of banking and other operating
services to international and domestic financial institutions.
Trading Products services include sales, trading and research activities.
We provide integrated debt, foreign exchange, interest rate, credit,
equity, securitization and commodities solutions to wholesale, commer-
cial and retail clients. In addition, we provide efficient funding and
liquidity management to BMO Financial Group and its clients, as well
as new product development, proprietary trading and origination.
Merchant Banking services include the sourcing, structuring and
financing of private equity investments, primarily in North America.
Credit Investment Management offers investors products and services
that use credit as a tool for asset management.
Strengths
•Well-established franchise with a leadership position in certain
industries and products and a reputation for quality advice.
•Top-tier Canadian equity research, sales and trading capabilities.
•Largest presence of any Canadian investment and corporate
bank in the U.S. Midwest.
•
Cross-border capabilities with the ability to leverage North
American expertise.
Challenges
•Mature Canadian market.
•Highly competitive U.S. investment and corporate banking market.
•Uncertainty in the current capital markets environment.
•Strength of the Canadian dollar.
•Focus in 2007 and first half of 2008 on reducing the size and risk
profile of the commodities portfolio.
Key Performance Metrics and Drivers 2007 2006 2005
Trading products revenue ($ millions)
281 1,370 1,234
Equity block trading dollar value ($ billions)
115.7 92.3 73.9
Investment and Corporate Banking and
other revenue ($ millions)
1,688 1,410 1,507
Equity underwriting participation (deals) (1)
276 267 268
Debt underwriting participation (deals) (1)
110 143 156
Average loans and acceptances ($ billions)
69.6 55.0 48.3
Equity research ranking (2)
#1 #1 #1
(1) Canadian issuers in North America.
(2) Brendan Wood International.
1,061
1,156
1,240
481
U.S. Revenues
Total revenues (US$ millions)
Excluding commodities losses
200720062005
Continued solid growth in
U.S. businesses other than
commodities trading.
20072006200520042003
96 102
143
238
804 888
1,318
1,933
394
2,041
Canadian Mergers and
Acquisitions (M&A) Market (1)
Value of deals ($ billions)
Number of deals
(1) For the 12 months ended September 30
Another year of significant M&A
growth.
109
51
73
42
95
49
BMO Capital Markets
Market
200720062005
North American Debt
Underwriting
–
Canadian
Issuers ($ billions)
Continued strong participation in
corporate debt markets.
20072006200520042003
14.6
18.6
21.0
18.7
20.9
7.8
Excluding significant items
Return on Equity (%)
ROE was strong, excluding the
impact of significant items, despite
an increase in equity.