Bank of Montreal 2008 Annual Report Download - page 31

MD&A
BMO Financial Group 191st Annual Report 2008 | 27
Our Performance (Note 1) Peer Group Performance
Credit Losses
•
The provision for credit losses (PCL) was $1,330 million, comprised
of $1,070 million of specific provisions and a $260 million increase
in the general allowance.
•PCL as a percentage of average net loans and acceptances was
60 basis points, reflecting higher provisions for credit losses at this
point in the credit cycle.
Impaired Loans
•Gross impaired loans and acceptances (GIL) were $2,387 million,
up from $720 million in 2007, and represented 11.3% of equity and
allowances for credit losses, compared with 4.1% a year ago.
•The global economy slowed significantly in 2008. Formations of
new impaired loans and acceptances, a key driver of provisions for
credit losses, were $2,506 million, up from $588 million in 2007,
primarily reflecting exposures to the manufacturing, oil and gas
and U.S. residential and commercial real estate sectors.
Provision for Credit Losses as a % of Average
Net Loans and Acceptances
•The Canadian peer group average PCL represented
41 basis points of average net loans and acceptances,
up from 23 basis points in 2007.
•The North American peer group average PCL of
220 basis
points was up from 75 basis points last year as the U.S.
banks were more affected by deterioration in the real
estate market and the broader economy.
Gross Impaired Loans and Acceptances as a
% of Equity and Allowances for Credit Losses
•GIL for the Canadian peer group were 102% higher than
last year and represented 7.5% of equity and allowances
for credit losses, up from 4.5% last year.
•For the North American peer group, GIL were 179% higher
and represented 8.6% of equity and allowances for credit
losses, up from 3.5% last year.
Further details are provided on pages 41 and 76. Graph not to scale.
Further details are provided on pages 41 and 76.
The Canadian peer group averages are based on the performance of Canada’s six
largest banks: BMO Financial Group, Canadian Imperial Bank of Commerce, National
Bank of Canada, RBC Financial Group, Scotiabank and TD Bank Financial Group.
The North American peer group averages are based on the performance of North
America’s largest banks, consisting of 15 of the largest banks in North America.
It includes the Canadian peer group, except National Bank of Canada, as well as
Bank of America Corporation, Citigroup Inc., J.P. Morgan Chase & Co., KeyCorp,
National City Corporation, The PNC Financial Services Group Inc., SunTrust Banks Inc.,
U.S. Bancorp, Wachovia Corporation, and Wells Fargo & Company. Due to recent
market developments, the U.S. banks included in our North American peer group
are expected to change in 2009.
BMO Financial Group
Canadian peer group average
North American peer group average
20082007200620052004
0.11 0.09
(0.07)
0.17
0.60
20082007200620052004
4.1
11.3
3.8
4.9
7.5
Cash and Securities-to-Total Assets
•The cash and securities-to-total assets ratio remained strong at
29.1%, down from 33.1% in 2007 but remaining at its second-highest
level in five years.
•Our liquidity position remains sound and is supported by our large
base of customer deposits and our strong capital position.
Capital Adequacy
•The Tier 1 Capital Ratio was strong at 9.77%, well above our
minimum target of 8.0%.
•The Total Capital Ratio was 12.17%.
•A new framework, Basel II, was adopted in 2008. Basel II and
Basel I methodologies are not comparable.
•BMO has $3.4 billion of excess capital relative to our targeted
minimum Tier 1 Capital Ratio.
Cash and Securities-to-Total Assets (%)
•The cash and securities-to-total assets ratio for the
Canadian peer group of 27.8% was down from 31.7%
in 2007. Total assets, driven by organic lending growth
and acquisitions, grew faster than cash and securities
as trading activity slowed.
•The North American peer group average ratio was 29.0%
in 2008, down from 31.5% last year.
Capital Adequacy
•The Canadian peer group average Tier 1 Capital Ratio was
9.44% in 2008 under Basel II rules.
•The basis for computing capital adequacy ratios is not
comparable in Canada and the United States.
20082007200620052004
33.1
29.1
27.2
26.4
25.8
2004 – 2007 under Basel I; 2008 under Basel II.
20082007200620052004
9.51 9.77
9.44
10.22
10.30
9.84
Further details are provided on page 81.
Further details are provided on pages 60 to 62.
Credit Rating
•BMO’s credit ratings, as assessed by the four major ratings agencies listed
below, were unchanged in 2008 with a stable outlook. All four ratings
are considered high-grade and high quality.
Further details are provided on page 82.
2008
AA
AA–
Aa1
A+
2007
AA
AA–
Aa1
A+
2006
AA
AA–
Aa3
AA–
2005
AAL
AA–
Aa3
AA–
2004
AAL
AA–
Aa3
AA–
DBRS
Fitch
Moody’s
S&P
2008
AA
AA–
Aa1
AA–
2007
AA
AA–
Aa1
AA–
2006
AA
AA–
Aa3
AA–
2005
AAL
AA–
Aa3
AA–
2004
AAL
AA–
Aa3
AA–
DBRS
Fitch
Moody’s
S&P
2008
AA
AA–
Aa2
AA–
2007
AA
AA–
Aa2
AA–
2006
AAL
AA–
Aa3
A+
2005
AAL
AA–
Aa3
A+
2004
AAL
AA–
Aa3
A+
DBRS
Fitch
Moody’s
S&P
Canadian peer group averageBMO Financial Group North American peer group average
•The Canadian peer group median credit ratings were unchanged in 2008
with no change in the ratings of any of the individual Canadian banks.
Each of the average Canadian peer group ratings is considered high-grade
and high quality.
•
The North American peer group median credit ratings were also unchanged,
although there was some change in the ratings of certain of our U.S. peers.
The Canadian peer group ratings are as at October 31, 2008 and the U.S. peer
group ratings are as at September 30, 2008.