Bank of Montreal 2008 Annual Report Download - page 62

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
58 | BMO Financial Group 191st Annual Report 2008
Corporate Services, including Technology and Operations
Corporate Services includes the corporate units that provide expertise
andgovernancesupporttoBMOFinancialGroupinareassuchasstrategic
planning, law, finance, internal audit, risk management, corporate
communications, human resources and learning. Our operating results
include revenues and expenses associated with certain securitization
activities, the hedging of foreign-source earnings, and activities related
to the management of certain balance sheet positions and BMO’s
overall asset-liability structure.
Technology and Operations (T&O) manages, maintains and
provides governance over information technology, operations services,
real estate and sourcing for BMO Financial Group. T&O focuses on
enterprise-wide priorities that improve service quality and efficiency
to deliver an excellent customer experience.
Financial Results
Operating results for T&O are included with Corporate Services for
reporting purposes. However, costs of T&O services are transferred to
the three operating groups, and only minor amounts are retained in
T&O results. As such, results in this section largely reflect the corporate
activities outlined above.
Corporate Services net loss for the year was $525 million, compared
with a net loss of $64 million in 2007. The increased loss was largely
due to higher provisions for credit losses, including a $260 million
($166 million after tax) increase in the general allowance, compared
with a $50 million ($33 million after tax) increase in the prior
year. Non-interest expense was $171 million lower, largely related to
a $159 million ($103 million after tax) restructuring charge in 2007.
As explained on page 38, BMO analyzes revenues on a teb basis
at the operating group level, with an offsetting adjustment in Corporate
Services. Results reflect teb reductions in net interest income and
related income taxes of $195 million, $180 million and $127 million for
2008, 2007 and 2006, respectively.
BMO’s practice is to charge loss provisions to the operating groups
each year, using an expected loss provisioning methodology based on
each group’s share of expected credit losses over an economic cycle.
Corporate Services is generally charged (or credited) with differences
between expected loss provisions charged to the client operating
groups and provisions required under GAAP.
Corporate Services, including Technology and Operations
(Canadian $ in millions, except as noted)
Change from 2007
As at or for the year ended October 31 2008 2007 2006 $%
Net interest income (teb) (747) (539) (279) (208) (39)
Non-interest revenue 446 215 105 231 +100
Total revenue (teb) (301) (324) (174) 23 7
Provision for (recovery of)
credit losses 825 (85) (250) 910 +100
Non-interest expense 73 244 131 (171) (70)
Income before income taxes
and non-controlling interest
in subsidiaries (1,199) (483) (55) (716) (+100)
Income taxes (recovery) (teb) (748) (494) (324) (254) (52)
Non-controlling interest 74 75 76 (1) (2)
Net income (loss) (525) (64) 193 (461) (+100)
Full-time equivalent staff 9,376 8,806 9,174 570 6
U.S. Business Selected Financial Data
(US$ in millions) Change from 2007
As at or for the year ended October 31 2008 2007 2006 $%
Total revenue (144) (142) (118) (2) (2)
Provision for (recovery of)
credit losses 783 17 (84) 766 +100
Non-interest expense (68) 9 24 (77) (+100)
Income taxes (recovery) (327) (81) (75) (246) (+100)
Net loss (550) (105) (1) (445) (+100)
Summary Balance Sheet ($ millions)
As at October 31 2008 2007 2006 2005 2004
Assets
Cash resources 21,105 22,890 19,608 20,721 18,045
Securities 100,138 98,277 67,411 57,034 49,849
Net loans and acceptances 214,995 201,188 190,994 174,337 156,248
Other assets 79,812 44,169 41,965 41,770 36,764
416,050 366,524 319,978 293,862 260,906
Liabilities and Shareholders’ Equity
Deposits 257,670 232,050 203,848 193,793 175,190
Other liabilities 134,761 114,330 96,743 82,158 69,005
Subordinated debt 4,315 3,446 2,726 2,469 2,395
Preferred share liability 250 250 450 450 450
Capital trust securities 1,150 1,150 1,150 1,150 1,150
Shareholders’ equity 17,904 15,298 15,061 13,842 12,716
416,050 366,524 319,978 293,862 260,906
Total assets increased $49.5 billion or 13.5% from last year to
$416.0 billion at October 31, 2008. There was a $35.6 billion increase
in other assets, a $13.8 billion increase in net loans and acceptances,
a $1.9 billion increase in securities and a $1.8 billion decrease in
cash resources. The stronger U.S. dollar increased assets (and liabilities
and shareholders’ equity) by $47.4 billion.
Total liabilities and shareholders’ equity increased $49.5 billion
or 13.5%. There was a $25.6 billion increase in deposits, a $20.4 billion
increase in other liabilities, a $0.9 billion increase in subordinated
debt and a $2.6 billion increase in shareholders’ equity.
Securities ($ millions)
As at October 31 2008 2007 2006 2005 2004
Investment –– 14,166 12,936 15,017
Trading 66,032 70,773 51,820 44,087 34,821
Available-for-sale 32,115 26,010 – – –
Other 1,991 1,494 1,414 – –
Loan substitute ––111111
100,138 98,277 67,411 57,034 49,849
Available-for-sale securities increased $6.1 billion from $26.0 billion
in 2007, primarily due to the increase in BMO-underwritten Canadian
mortgages held in the form of government-insured mortgage-backed
securities and the reclassification of $2.0 billion in trading securities to
available-for-sale. Trading securities decreased $4.7 billion to $66.0 bil-
lion. There were lower holdings of asset-backed commercial paper and
equity positions in support of equity derivatives, as well as a reduction
due to the impact of the reclassification of securities from trading to
available-for-sale. These factors were partially offset by the effect of
the stronger U.S. dollar and a change in the asset mix that lowered
Financial Condition Review