Bank of Montreal 2008 Annual Report Download - page 35

MD&A
BMO Financial Group 191st Annual Report 2008 | 31
Monetary Policy
Bond and money market expectations about inflation and central
bank monetary policy have an impact on the level of interest rates.
Changes in market expectations and monetary policy are difficult
to anticipate and predict. Fluctuations in interest rates that result from
these changes can have an impact on our earnings. Refer to the
discussion of Market Risk on pages 77 to 79 for a more complete
discussion of our interest rate risk exposures.
Level of Competition
The level of competition among financial services companies is high.
Furthermore, non-financial companies are increasingly 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 competitors.
A deterioration in these factors or a loss of market share could
adversely affect our earnings.
Changes in Laws and Regulations
Regulations are in place to protect our clients, investors and the public
interest. Changes in laws and regulations, including how they are
interpreted and enforced, could adversely affect our earnings by allowing
more competition for our products and services and by increasing
the costs of compliance. In addition, our failure to comply with laws and
regulations could result in sanctions and financial penalties that could
adversely affect our reputation and earnings.
Judicial or Regulatory Judgments and Legal
and Regulatory Proceedings
We take reasonable measures to ensure compliance with the laws
and regulations of the jurisdictions in which we conduct business.
However, there can be no assurance that we will always be in compli-
ance or be deemed to be in compliance. As a result, it is possible
that we could receive a judicial or regulatory judgment or decision
which results in fines, damages or other costs that would have a
negative impact on earnings and damage our 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 business prospects. Information about
legal and regulatory matters we currently face is provided in Note 29
on page 146 of the financial statements.
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 finan-
cial results could be adversely affected if the financial statements or
other financial information provided by customers and counterparties
is materially misleading.
Execution of Strategic Plans
Our financial performance is influenced by our ability to execute
strategic plans developed by management. If these strategic plans do
not meet with success or if there is a change in these strategic plans,
our earnings could grow at a slower pace or decline.
Acquisitions
We perform thorough due diligence before completing an acquisition.
However, it is possible that we might make an acquisition that does not
subsequently perform in line with our financial or strategic objectives.
Changes in the competitive and economic environment as well as other
factors may lower revenues, while higher than anticipated integration
costs and failure to realize expected cost savings could also adversely
affect our earnings after an acquisition. Our post-acquisition performance
is also contingent on retaining the clients and key employees of
acquired companies, and there can be no assurance that we will
always succeed in doing so.
Critical Accounting Estimates
We prepare our financial statements in accordance with Canadian
generally accepted accounting principles (GAAP). The application of
GAAP 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 cir-
cumstances may change or new information may become available.
Our financial results would be affected in the period in which any new
circumstances or information became apparent, and the amount of
the impact could be significant. More information is included in the
discussion of Critical Accounting Estimates on page 69.
Operational and Infrastructure Risks
We are exposed to many types of operational risks that affect all large
corporations. Such risks include the risk of fraud by employees or others,
unauthorized transactions by employees, and operational or human
error. We also face the risk that computer or telecommunications sys-
tems could fail, despite our efforts to maintain these systems in good
working order. Given the high volume of transactions we process on
a daily basis, certain errors may be repeated or compounded before
they are discovered and successfully rectified. Shortcomings or failures
of our internal processes, employees or systems, including any of
our financial, accounting or other data processing systems, could lead
to financial loss and damage to our reputation. In addition, despite
the contingency plans we have in place, our ability to conduct business
may be adversely affected by a disruption in the infrastructure that
supports our operations and the communities in which we do business.
Other Factors
Other factors beyond our control that may affect our future results are
noted in the Caution Regarding Forward-Looking Statements on page 30.
Additional risks, including credit and counterparty, market, liquidity and
funding, operational, business, model, strategic, reputation and environ-
mental risks, are discussed in the Enterprise-Wide Risk Management
section starting on page 73.
We caution that the preceding discussion of factors that may
affect future results is not exhaustive. When relying on forward-looking
statements to make decisions with respect to BMO, investors and
others should carefully consider these factors, as well as other uncer-
tainties, 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.