Standard & Poor’s Ratings Services has affirmed all the ratings on Bank of Montreal and its subsidiaries, and it has revised the outlook on BMO to stable from negative. The negative outlook on BMO’s U.S. subsidiaries remains unchanged.

“The ratings on BMO reflect its very strong domestic personal and commercial bank, which provides it with a solid base for consistent earnings performance,” says Standard & Poor’s credit analyst Donald Chu.

The performance of the wholesale banking group has shown improvement during the first part of 2003, coming off of two years’ soft performance that were negatively affected by the difficult credit environment and challenging global equity markets. S&P noted.

S&P also notes that the private client group, which is small in proportion to the personal and commercial and investment banking businesses, remains “an important element of the bank’s overall strategy”.

S&P says that BMO’s management remains committed to expand this business in North America, as evidenced by the sizable amount of capital that it has invested in recent years. “Performance of the private client group was not strong in 2002 due to the weak global equity markets; however, this area is starting to show signs of improvement as the equity markets begin to show signs of recovery,” S&P says.

S&P also warns that the bank’s proportion of large exposures to U.S. corporate loans is large relative to the size of its total loan portfolio. “Nevertheless, BMO has not been a prominent player in the leveraged lending markets, as some of its peers have been. The problems associated with the telecommunications and energy sectors seem to have abated for now, and the bank continues to take steps to proactively sell down its exposure to these sectors when market conditions permit. BMO’s exposure to these industries is not as significant as that of some of its peers, and thus, it has not been affected to the same degree,” it concludes.

“Standard & Poor’s remains satisfied with BMO’s credit quality, which is expected to be less of an issue as the credit cycle continues to improve. The bank has the capacity to maintain its earnings momentum given its historically strong risk management framework, well-positioned domestic franchise, and toehold in the U.S. with its HarrisBank platform,” it says. “A large part of this, however, will have to be driven by continued cost reductions, considering the maturity of the bank’s primary markets.”

It says that the stable outlook on BMO reflects Standard & Poor’s expectation that the bank will continue to exhibit consistently very strong earnings performance and maintain very strong capital on a risk-adjusted basis. “This is supported by the bank’s solid business franchises in Canada, its solid credit risk management framework and improving expense management.”

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