Source: The Canadian Press

The Bank of Montreal’s CEO says he is encouraged by signs that business spending in the United States is picking up, which gives him confidence the American economy is heading for a vibrant 2011.

“Corporates are gaining courage, slowly, to borrow,” Bill Downe told a financial conference in New York.

“I’m a little bit more optimistic about 2011 than what I’ve read from economists.”

Downe said that corporate clients at the Canadian bank’s U.S. operations are engaging in more “conversation” about capital expenditure and investments again after many made severe cutbacks during the financial downturn.

Last year, corporate credit applications increased at BMO-owned Harris Bank branches throughout the Midwest but actual borrowing did not, he added.

However, Downe said he is encouraged by interest in borrowing for business investments in the opening weeks of this year.

Many U.S. businesses have refrained from spending in the aftermath of the recession due to lingering global economic uncertainty — which hasn’t helped U.S. unemployment numbers budge much from just under 10%.

Business spending would help stimulate the economy because it would mean more factory orders for equipment and machinery and that might prompt an increase in hiring.

Two other encouraging trends Downe noted were the increase in merger and acquisition activity and growing interest from U.S. companies looking to ramp up exports.

“When I look at the M&A pipeline, that’s really what gives me the optimism that the commercial banking business is going to get some legs,” he said.

In addition, he is seeing some of the bank’s U.S. clients looking to export markets for sales, much more than Canadian clients because the U.S. dollar, which is weaker relative to the Canadian currency, hasn’t sent the cost of U.S. goods higher.

Down said that at the bank’s Chinese operations 85% of revenues are derived from the U.S., mostly in trade financing deals from clients in the U.S. Midwest. “That’s where I see the life . . . they’re looking beyond domestic demand,” he said.

BMO (TSX:BMO) expanded its presence in the U.S. in December with the acquisition of Wisconsin-based Marshall & Ilsley Corp. for US$4.1 billion in shares.

The acquisition doubled the U.S. operations of the fourth-largest Canadian bank by adding 321 locations to a total of 695 in the Midwest.

Shares in BMO were up 21 cents at $58.34 Wednesday afternoon trading on the Toronto Stock Exchange.

The road to success for Canadian banks in the United States has been littered with problems. Most recently, Royal Bank (TSX:RY) announced plans to focus on fixing its U.S. banking business before sinking any more money into the division.

TD Bank (TSX:TD) and BMO have both made acquisitions in the past year to expand their U.S. holdings, but uncertainty over the economy has dealt a list of challenges, partly in loan portfolios which have been ravaged by the soft housing market.