Delivering value
for our customers

As the Chairman said in his message on the previous page, it has been a year of transition. The fact of a management transition itself creates the expectation of change and in our company we started the year with a great deal of change underway. In truth, our history has been defined by the periods of greatest change, when we have seized the opportunity to do things in a different way and challenged conventional practices.

We take great pride in our history and the fact that Bank of Montreal can properly claim to be the first Canadian bank. When this company was established, on November 3, 1817, it was destined to play an important role in the development of the North American economy. We provided capital to new businesses across the continent, financed the building of the nation’s early infrastructure, the railways, the canals and for many years served as Canada’s central bank. In March we are holding our Annual General Meeting in Quebec City, to recognize that it will celebrate its 400th anniversary in 2008.

Today we are a bank with diversified operations across North America and tightly defined, but important, client businesses in Europe and Asia. With 36,000 talented, committed employees and market capitalization in excess of $30 billion we have earned a reputation as a consistent performer over a long period of time – 190 years in fact. We see a future in which our success is not constrained by resources or opportunity.

Looking back at the past year, we were confronted by events that tested and confirmed the resilience of BMO and the people who work here. Upon recognizing significant losses in our natural gas trading business, our attention was clearly on reduction of risk in the portfolio and minimizing the cost of that reduction. We identified areas where decision making was not at the standard expected at our company. The factors that contributed to this situation have been explicitly revisited; we completed a thorough review of controls and risk practices in the business and management oversight has been strengthened. I made the commitment earlier this year that this was a one-time, one-location event, and this is a commitment we intend to keep.

In the last two quarters we have seen, at the same time, highly unsettled debt markets and a global revaluation of financial assets. While this was triggered by the issues in the U.S. subprime mortgage market, it brought attention to a broader mis-pricing of financial risk. Our exposure to subprime is indirect and very limited, but all markets have been affected and will likely exhibit continuing uncertainty about price and liquidity going into the next year.

Against this backdrop, our confidence in the future is confirmed by the strength of our balance sheet and the demonstrated capacity of the core operating businesses to grow revenue and net income. In BMO Capital Markets, where the difficult issues of the year were centred, the impact was cushioned by better performance in the issuing client business, investment and corporate banking. We continue to focus on a strong North American base of mid-market clients where our expertise in M&A, debt and equity, lending and operating services can combine in a stable high return on equity business. The institutional trading business, where much of the market risk activity is centred, remains critical to our clients’ execution needs but will follow a strategy to reduce future volatility from the levels of the past 12 months.

“...our history has been defined by the periods of greatest change, when we have seized the opportunity to do things in a different way and challenged conventional practices.”

We are expecting Personal and Commercial Banking and our wealth management businesses in Canada and the United States to generate increased levels of growth at attractive rates of return. Following a period of sustained reinvestment in people and facilities, we are committed to faster growth in our customer base, in loans and deposits and in invested assets under management. In Canada, we have been building new branches, upgrading existing branches, and improving our customer access to bank machines, telephone banking and online banking and investing. In the United States, we added 30 branches to our base of 202 and announced the further acquisition of 40 branches, which when completed will represent a 35% expansion since the beginning of fiscal 2007.

But the most important element in the pursuit of growth is our relationship with our customers. We hear them telling us, in so many ways, that managing their finances is often too complex and they want our help in making better decisions. We are no longer asking what are the products and services that we might sell to customers, we are asking what it is that our customers want and what will we do to help them make better financial decisions. How can we help them buy their first home, save for the college education of their children, support or assist aging parents, prepare for retirement – on their terms.

In every area of BMO we are examining the impact of our actions and our decisions on our customers. It is central to our priorities and it is showing up across all of our businesses. The introduction of AIR MILES loyalty recognition for debit card users this spring rewards clients who have a primary relationship with us, where we truly are in a position to help them make the right choices. Shifting our resources to expand the mortgage specialist sales force in the Bank brings us closer to our customers and away from the mortgage broker channel where margins are poor and it is hard to manage the customer experience. Having everyone in our company see themselves as working for the customer – whether they sit on the front line, in the back office, or in a critical corporate function – generates enthusiasm and commitment in our bankers, in all of our employees. When I read this Annual Report, it confirms for me their determination and passion for our customers.

“In every area of BMO we are examining the impact of our actions and our decisions on our customers. It is central to our priorities and it is showing up across all of our businesses.”

I have spent many working days this year at the front line, meeting with customers from every line of business, participating in round tables with branch managers and the leaders of individual lines of business. In every conversation I have the opportunity to hear what the customer is saying; when they are delighted with our service and we can expand on those wins, or where we have not met their expectations (or our own) and can do better.

The creation of value for our shareholders flows directly from the value we deliver to our customers. We know that the best way to do that is to bring the strength of our entire company to our customers, to help them to make the choices that are best for them. Every time.

William A. Downe
President and Chief Executive Officer

BMO Financial Group 2007 Online Annual Report Caution Regarding Forward-Looking Statements