Bank of Montreal 2010 Annual Report Download - page 32

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
Currency Rates
The Canadian dollar equivalents of our revenues and expenses
denominated in currencies other than the Canadian dollar are subject
to fluctuations in the value of the Canadian dollar relative to those
currencies. Refer to the Foreign Exchange section on page 36 and the
Market Risk section on pages 82 to 85 for a more complete discussion
of our foreign exchange risk exposures.
Changes in Laws, Regulations and Approach to Supervision
Regulations are in place to protect our clients, investors and the public
interest. Considerable changes in laws and regulations that relate to the
financial industry have been proposed, including changes related to
capital and liquidity requirements. Changes in laws and regulations,
including how they are interpreted and enforced, and in approaches to
supervision could adversely affect our earnings, for example by limiting
the products or services we can provide and the manner in which we
provide them and by increasing the costs of compliance. The changes
could also affect the levels of capital and liquidity we choose to maintain.
In particular, the Basel III global standards for capital and liquidity, which
are discussed in the Enterprise-Wide Capital Management section that
starts on page 59, and enactment of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, which is discussed in the U.S. Regulatory
Developments section on page 67, may have an impact on our results
or activities. Liquidity and funding risk is discussed starting on page 85.
In addition to the factors outlined, 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 comply with the laws and regulations
of the jurisdictions in which we conduct business. Should these measures
prove not to be effective, it is possible that we could be subject to
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 certain legal and regulatory
matters we currently face is provided in Note 28 on page 159 of the
financial statements.
Execution of Strategy
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. In addition, our ability to execute
our strategic plans is dependent to a large extent on our ability to
attract, develop and retain key executives, and there is no assurance
we will continue to do so successfully.
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 circumstances 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 68.
We are required to adopt IFRS commencing November 1, 2011.
Further discussion on the impact is included on pages 70 to 73.
Acquisitions
We conduct thorough due diligence before completing an acquisition.
However, it is possible that we might make an acquisition that
subsequently does not 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.
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 infor mation they provide is accurate and complete. Our financial
results could be adversely affected if the financial statements or
other financial information provided by customers and counterparties
is materially misleading.
Operational and Infrastructure Risks
We are exposed to many of the 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
systems 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 rectified. Shortcomings or failures of our internal
processes, employees or systems, or those provided by third parties,
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, including disruption caused by pandemics
or terrorist acts.
Other Factors
Other factors beyond our control that may affect our future results are
noted in the Caution Regarding Forward-Looking Statements on page 29.
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 uncertainties,
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.
30 BMO Financial Group 193rd Annual Report 2010