Bank of Montreal CEO Tony Comper says his bank’s retail brokerage division is its smallest profit contributor, but has the biggest potential for growth, at least in the United States.
In a presentation to National Bank Financial’s Financial Services Conference in Montreal today, Comper said, BMO’s private client group, “… holds out the greatest opportunity for rapid and very substantial growth over the long term.”
However, that growth is expected to come from the U.S. rather than Canada. “Retail brokerage and asset management are already very large and very successful businesses for BMO in Canada, where rapid growth in the future is constrained by the lack of properties available for acquisition,” he said.
As a result, the bank has been plowing a portion of profits from its Canadian wealth management business into the cost of building out these businesses in the U.S., “where wealth management is still highly fragmented”.
He noted that it’s in the process of expanding its private banking sales force, beginning in the Chicago area and then fanning out to other locations throughout the U.S. It’s working to boost the performance of Harrisdirect, its U.S. online brokerage.
“Having implemented a more cost-effective and flexible business model, we are able to readily adjust operating costs as client demands fluctuate. And we believe we can improve marketing effectiveness by focusing our efforts on our key target market, the serious, long-term investor who prefers investing in an online environment,” he said. It will also be cutting online trading fees in April.
U.S. Acquisitions also remain a priority. Comper said that BMO is seeking acquisitions in three categories: small banks with a purchase price of less than US$500 million; medium, in the range of US$500 million to US$2 billion; and large, above US$2 billion.
“Because our superior business model benefits from back-office consolidation, we are most interested in acquisitions involving a very significant level of ownership, preferably 100%,” he noted. “As previously, future acquisitions will be driven by opportunity and must pass the rigorous filters of being first and foremost a good strategic and cultural fit, and then a good financial fit. They must add to cash earnings per share within three years.”
In the investment banking business, Comper said a key priority for this group in 2005 is to maximize revenue growth, “by further improving the integrated delivery of our expanded range of products and services. We believe that superior research is a core capability of our company and a key element in building a high-quality investment bank.”
“In Canada, where we are already recognized as a major player, we will continue to reinforce our leading position by exercising our strengths in mergers and acquisitions, debt and equity underwriting, and unparalleled equity research capability,” he explained.
“In the United States, where we are a mid-market firm targeting private and smaller-cap public companies, we are staying focused on what we do best: building on Harris’s expertise and longstanding relationships with more than 1500 mid-market clients,” he added.
As for personal and commercial banking, it aims to increase profitable market share. “In order to stabilize market share while maintaining margins for both consumer and commercial lending, we are revving up the sales engine even further, undertaking a wide range of initiatives including: sales force expansion; increased marketing; and the introduction of innovative products such as the Homeowner ReadiLine, a mortgage and line of credit rolled into one. We are also undertaking selected pricing initiatives. In making pricing decisions, we constantly balance profitability and market share considerations,” he said.
“In our view, managing margins is as important as increasing market share in the short run. Our focus on mix and re-packaging the product to increase client value will allow us to continue growing net income without sacrificing margin for share,” Comper said. “But there is no doubt in our minds that, over the longer term, we must and will stabilize market share in personal lending, and grow market share in commercial lending, which has long been a differentiating strength at BMO.”
BMO eyes U.S. market for growth
Bank investing Canadian profits in U.S. businesses
- By: James Langton
- March 30, 2005 March 30, 2005
- 11:10