Fitch Ratings has affirmed all ratings for the Bank of Montreal and its principal banking subsidiaries.

The rating agency says that its assessment of BMO reflects the company’s diversified franchise and solid market position in Canada and its established U.S. presence anchored by Harris National Association.

“BMO’s financial performance remains sound with satisfactory earnings generation, good asset quality, and solid capital. While BMO’s profitability is slightly less than its Canadian peers, earnings remain sound and consistent,” it says. “Consistent with industry trends, the challenging yield curve and competition have pressured the net interest margin. However, fee income streams have grown, primarily in card fees, mutual funds, insurance, underwriting and advisory, and trading.”

“At Harris N.A., margin compression and reinvestment for organic growth through de novo branching and bank acquisitions resulted in just a 0.52% return on assets for the nine months ending Sept. 30, 2006. BMO has increasingly focused on improving efficiency. In January 2007, the company announced a corporate-wide restructuring that will entail a headcount reduction of 1,000 positions, primarily non-customer facing. BMO’s earnings performance will easily absorb the associated charge of $88 million after tax expected to be taken in the first quarter of 2007,” Fitch says.

As with other key risk areas, BMO’s management of credit risk is robust, it reports. Fitch notes that BMO’s low credit costs remain consistently lower than other large Canadian banks. Net credit losses were just 15 basis points of loans (excluding acceptances and securities purchased under resale agreements) in 2006. Gross impaired loans continued to decline and are very manageable at 43 bps of loans.

Capital levels have strengthened somewhat and are in line with domestic peers and BMO’s overall risk profile, it notes. Despite growth aspirations for Harris N.A. in particular, BMO’s targeted dividend payout rate is relatively high at 45%-55% of earnings. BMO’s funding profile and liquidity remain good, it concludes.