Remarks by Tony Comper, Chairman and CEO, BMO Financial Group at National Bank Financial Canadian Bank CEO Conference

Montreal, QC, April 9, 2003

(Please check against delivery)

Title Slide
Thank you Rob, and hello everyone. What I would like to do in our short time together is provide my own perspective on the factors that give me a high degree of confidence in the future profitability of BMO Financial Group.

Since I can't hope to cover every aspect, I would like to take a closer look at our personal and commercial operations to give you a feel for the operating leverage we anticipate in these core businesses.

Let me begin by saying that my confidence in BMO's prospects is deeply rooted in the progress we have made along two parallel tracks since 1999.

Slide 1
The first track is focused execution of our transnational growth strategy to invest in our Canadian franchise - which is our enduring, primary strength - while expanding in the U.S., where we are at the forefront of the drive by Canada's banks to operate transnationally.

I have talked a lot in the past about the enviable position BMO enjoys in the North American economic space as a Canadian-headquartered, Canada-U.S. bank with the largest U.S. asset base of any Canadian bank (at $82 billion) - and the highest quality assets built on the foundation of a strong retail platform in Chicago.

I won't revisit this familiar territory except to remind you that we have almost two decades of on-the-ground experience in making the adaptations necessary to create and grow a successful retail bank network in the United States today. The lessons we have learned about how to manage as effectively north-to-south as we do east-to-west put us considerably ahead of the curve as a fully functioning Canada-U.S. enterprise.

Slide 2
The other parallel track we have followed since 1999 - the transformation of our business mix to ensure the most efficient deployment of our capital and other resources - also puts us ahead of the curve in our Canadian peer group.

Shortly after I moved into my current position, I told the investor community that we were clearly focused on improving BMO's profitability and would shift resources from unprofitable, low-profit and low-potential businesses to those with greater prospects for high returns.

And this is exactly what we have done. Since 1999, we have divested our Bancomer investment in Mexico; we have exited the global custody business, the corporate trust business, and our U.S. credit card joint venture; and we have sold 84 slower-growth branches.

These divestitures produced a running-rate shortfall of $284 million in annual revenues and, since revenue hits are immediate while the impact of strategic redeployment comes later, we experienced considerable downward pressure on earnings.

Since 1999, we have also decreased risk-weighted assets in the Investment Banking Group by more than $29 billion by exiting lower-profit corporate lending relationships. This very significant repositioning resulted in an additional running-rate revenue shortfall this year estimated at about $350 to 400 million.

Overall, therefore, our strategic repositioning for a more profitable future produced a running rate revenue shortfall of at least $634 million a year.

While the repositioning has dampened revenue growth over the past several years, the good news is that, as 2002 drew to a close, our ongoing efforts were starting to pay off.

Slide 3
BMO vaulted up several positions in most performance measures in the 2002 Canadian bank scorecard, leaping to second from sixth in the key measure of cash earnings-per-share growth.

In the first quarter of 2003, perhaps the most encouraging result was BMO's solid out-performance in revenue growth. At a time when revenues among our Canadian competitors declined by an average of 2.5 per cent, BMO revenues grew by 5.1 per cent.

Slide 4
Our Canadian and U.S. personal and commercial operations drove first-quarter growth, with revenues climbing seven per cent, productivity improving by 190 basis points, and net income rising 18 per cent from the same period last year.

First-quarter performance gets even stronger when viewed from a relative perspective. We outperformed our Canadian peers in revenue growth, net income growth, change in net interest margin, and balance sheet growth, both loans and deposits.

We believe these core businesses will support continued solid performance for BMO as our more market-sensitive businesses await the lift that will come with a sustained market turnaround.

Slide 5
Let's look at our Canadian personal and commercial operations headed by Rob Pearce, where we have led our Canadian peers in revenue growth for the past two quarters while implementing an aggressive yet exceedingly disciplined strategy designed to drive revenues higher.

Last quarter alone, significant volume growth and improving spreads produced a revenue increase of 7.4 per cent over the prior year while revenue for our competitors was relatively flat. In combination with continued productivity improvement, this revenue growth produced a net income increase of 15 per cent.

Notable ongoing competitive advantages include our well-known top-tier credit quality and, of course, small business banking, where we continue to close in on our target to be #1 in market share for loans up to $5 million.

Slide 6
We anticipate that a revenue lift will come with improvement in the economy, rising interest rates and a macro environment in which the forecasted demand for our retail products and services will exceed the growth in real GDP by at least 200 basis points.

In addition, operating leverage will flow from the major investments we have made over the past couple of years to provide our people with the tools and processes they need to meet customer needs, increase sales and contain costs.

While there is lots of room for further improvement, our customer satisfaction scores indicate that we are headed in the right direction. In the personal banking arena, for example, the Secure Customer Index increased four percentage points from 2000 to 2002 while the Employee Professionalism Index jumped eight percentage points.

A key sales and service initiative is, of course, our leading-edge Pathway Connect technology platform, which I have described in previous presentations. Rollout of Pathway is now complete, and its capabilities are being further enhanced by the addition of our customer relationship management software, Optimizer. Rollout of Optimizer, which provides our sales and service people with an integrated view of each customer relationship that is consistent across all customer access channels, is scheduled for completion in 2004.

Other significant initiatives are also underway to provide a crucial common foundation to drive operational excellence. These initiatives include the streamlining of layers of management, the standardization of processes for business planning and work flow, and the implementation of sales management best practices such as defining job descriptions in terms of revenue-generating activities and linking incentive compensation to sales generation.

We expect that, over time, business results for our Canadian personal and commercial operations will reflect the increased sales capacity we are creating through all these national initiatives.

Slide 7
The growth story is even more positive in U.S. retail and business banking led by Frank Techar. Here's a quick look at the growth in 2002 and in the first quarter of 2003, where volumes and market share are showing strong momentum. You'll note that in the first quarter loans were up 27 per cent from a year ago with deposits growing nine per cent. Overall, earnings grew 68 per cent in the first quarter on the heels of 70 per cent earnings growth in 2002.

With major U.S. banks now targeting Chicagoland, our competitive advantages include the well-entrenched, very well located Harris distribution network; the excellent reputation of the Harris brand in the local market; and our high scores in customer satisfaction, which is of course an ongoing priority.

In 2002, Harris scored 500 basis points above the competition for very satisfied personal banking customers and 1100 basis points higher than large competitors for very satisfied small business customers. As we already rank second in both micro and small business market share, our customer satisfaction scores indicate the momentum to become #1.

In addition, our strong deposit funding base of $13 billion USD and low loan-to-deposit ratio of 72 per cent position us well to fund increased lending efficiently in an improved economic environment.

All of these strengths represent good opportunities for operating leverage, as do the expansion plans now well under way to add 50 branches to Harris Bank's 145-branch distribution network.

To provide more insight into the leverage we anticipate in our opportunity-rich U.S. retail and business banking operations, let me provide three concrete examples.

Slide 8
The first is the high-potential micro business market, which encompasses firms with less than $500,000 USD in annual revenues - though I must say the nomenclature doesn't begin to express the vast potential of this market segment. Businesses of this size comprise approximately 80 per cent of all companies in Chicagoland and have proven to be a profitable market for a wide range of banking products and services.

There are more than 350,000 micro businesses within a three-mile radius of our existing branch network - an important statistic given what we know about the reliance of micro business owners on physical proximity and personal service.

Over the past year, we have rolled out a new micro business strategy to two-thirds of Chicagoland locations, introducing innovative products and specialized services tailored to the specific needs of this market.

Early results indicate a 49 per cent increase in micro business deposit accounts and a 340 per cent increase in micro business loans in the first five months of this year over the same period last year. We are moving quickly to leverage this demonstrated potential with rollout of the strategy to all Chicagoland locations slated for completion by year-end.

Slide 9
My second example is indirect auto lending, a cyclical business that is fraught with risk for those who don't understand it the way we most assuredly do after more than 30 years of experience. Our proven local business model is based on good relationships with dealers who appreciate consistent market presence and quick service for A paper, and does not include leasing or the financing of dealer floor plans.

By expanding our proven business model to nearby Midwestern states, we have increased sales by more than 40 per cent in each of the last two years to $2.2 billion USD while increasing yields and reducing risk.

The outsourcing of data entry and automation of a large proportion of the deal flow should allow us to continue expanding this business for the foreseeable future as we move into more states.

Slide 10
My third example, our sales management process, suggests real potential for sustained operating leverage improvements because in this case we can keep on raising the bar.

A key element of the sales management process is recognizing and rewarding bankers based upon their contribution to profitability. With the help of this process, we have boosted home equity loans by 32 per cent so far this year compared to the same period last year while also increasing business loans by 10 per cent and consumer deposits by 11 per cent.

Let me explain how this process works. Each product is assigned points based on its profitability, and employees earn points based on sales of each product. As a result of this system, average monthly points per FTE had increased 12 per cent to 2,380 year over year by the end of February.

Notably, since we introduced this process in October 2002 at Harris Bank Joliet, monthly sales points per FTE at this recent acquisition have climbed steadily to 1,543 from 545 - a 183 per cent increase in five months - with more improvement expected. We anticipate that this sales management process will also prove effective in quickly boosting sales after future acquisitions.

Slide 11
In concluding my U.S. retail and business banking story today, I thought it might help with apples-to-apples comparisons to provide a complete picture of BMO's retail and business banking operations in the U.S. by combining our Chicagoland and Harris Nesbitt mid-market operations.

As you know, some of our Canadian and U.S. competitors include their mid-market commercial businesses in their retail and business banking financials. On the other hand, we report our U.S. mid-market results as part of the Investment Banking Group in order to align reporting with how we manage these businesses - which we have integrated in order to streamline management and leverage expertise and product capability across Harris Nesbitt and our corporate and investment banking operations.

However, at a time when the enduring strength of retail and business banking has never been more obvious, I thought you might be interested in seeing just how large a proportion of our U.S. earnings derive from our mid-market businesses, which produce stable revenues as a result of good spreads and ongoing cash management fees.

This slide shows that the addition of our Harris Nesbitt mid-market lending and cash management businesses to the Chicagoland numbers in effect triples net income from our U.S. retail and business banking results for 2002 while the productivity ratio improves to about 60 per cent from 77.7 per cent.

From this perspective, U.S. net income from retail and business banking in 2002 increases to about 60 per cent from about 20 per cent.

Slide 12
While on the subject of interpreting our results, I'd like to provide my own perspective on why we took the opportunity to reclassify some of our businesses when we introduced a new system to improve how we price our products in the U.S. marketplace last quarter. This represented nothing less than our critical next step in managing our U.S. franchise as an integrated part of our transnational enterprise.

(By the way, I hope it was clear that we reclassified our numbers as distinct from restating them - i.e., the overall numbers remained precisely the same.)

When we introduced the new transfer pricing system, we also centralized all trading activities in the Investment Banking Group and centralized reporting of all treasury activities in Corporate Support. In much the same way that the centralization of risk management last year ensured consistent risk management best practices across the enterprise, the centralization of trading and treasury ensures the best possible returns from these specialized activities.

The reclassification also makes it easier for management and investors alike to hold business leaders accountable for growing their businesses and managing the associated expenses separate and apart from the ups and downs of trading and treasury; makes it easier to track the impact of recent and future acquisitions; and furthers our industry leadership in transparent financial disclosure.

Slide 13
Let's turn now to our Private Client Group, the focus of our U.S. strategic expansion over the past few years.

I spoke in some detail last year about the investment of $1.4 billion in nine U.S. wealth management acquisitions since 1999 as part of our strategy to create an integrated wealth management distribution platform in the U.S. This platform in about 20 locations with rich potential for profitable growth is now largely complete, integrated, and poised to take off with any sustained market turnaround.

Furthermore, in light of TD's announcement last week of its large goodwill write-down, I would like to point out that, at BMO, we are comfortable with the level of goodwill on our books. We review goodwill for impairment on a regular basis for each reporting unit, including the client investing unit, and the book value remains appropriate as it is exceeded by market value. Also, as markets weakened following the acquisitions, we revised our business model to achieve greater cost efficiencies and believe we are well positioned for growth when conditions improve.

Perhaps the most significant indicator of pent-up potential in wealth management is assets under management and administration, which increased 13 per cent year-over-year in the first quarter to $279 billion. If you exclude the impact of acquisitions, assets declined a modest three per cent at a time when the TSX declined 14 per cent and the S&P 500 declined 23 per cent.

Slide 14
Our Investment Banking Group is also well positioned for growth as soon as market and economic conditions improve and our mid-market clients start to make capital investments again.

Looking further ahead, the surest indicator of leverage is our progress in decreasing volatility while increasing profitability, which continues to be the primary focus of this group. Having decreased lower-profit risk-weighted assets by $29 billion since 1999 with another $7 billion to go as commitments come up for renewal in the years to come, we are well ahead of the peer group curve in this important respect.

When we have finished exiting low-profit lending relationships, our plan is to maintain a stable level of risk-weighted assets while investing additional capital in our personal, commercial and individual investing businesses. Over time, therefore, a smaller percentage of total capital will be invested in IBG businesses - approximately 30 to 33 per cent compared to 44 per cent today.

Slide 15
Last week, we announced a definitive agreement to acquire (subject to regulatory approval) Gerard Klauer Mattison, a New York-based equity research, sales, trading and investment banking boutique.

This modest transaction, which is structured as a 100 per cent share swap valued at approximately $30 million USD, has a nominal cash EPS impact and very comfortably meets our internal rate of return investment objective of 15 per cent. It is a first step in building a solid equity distribution capability in the U.S. that will match our outstanding Canadian equity franchise.

Rounding out our North American corporate and investment banking product offering and capability, the new platform will benefit our Canadian clients while accelerating U.S. growth and strengthening the BMO Nesbitt Burns franchise.

Under the Harris Nesbitt Gerard brand, it will provide individual investing clients in Canada with the research capability needed to invest in U.S. companies; provide Canadian issuing clients with U.S. research and distribution; and provide equity research, sales and trading services for more than 1,500 mid-market clients served by Harris Nesbitt and our Media & Communications and Energy teams - in addition to the 650 institutional relationships this acquisition brings to the equation.

Consistent with our recent practice of buying high-quality U.S. properties that are an excellent strategic fit at very attractive prices, the purchase price equals 2.4 times book value and 0.3 times revenue compared to a median for comparable transactions of 2.9 and 1.2 respectively.

Slide 16
Our acquisition activity will continue to focus on the U.S., where it is our intention to grow at an even faster pace. We are on the lookout for properties that will strengthen our existing solid platforms, are easily digestible (roughly in the price range established so far), make a good strategic and cultural fit, and are shareholder friendly.

Our top priority is retail and business banking, and a six-person acquisition team led by Frank Techar is aggressively scouting for properties in Chicagoland, Illinois and contiguous states. As I said, we are committed to adding about 50 branches to the Harris Bank network, with 11 new branches on track for this year.

Given that our wealth management platform is largely complete, acquisition activity in this group will focus on "in-fill" of this platform through select properties that complement our serious investor client profile and strengthen our presence in existing high-growth locations.

Slide 17
Turning now to credit risk management, let me just say that we continue to be a leader in this fundamental core competency.

As the credit picture brightened last quarter, we reported that our annual provision for credit losses was estimated to be at least $120 million lower than the annual target of $820 million we announced following the fourth quarter. We stand by this outlook - with the proviso, of course, that a protracted war in Iraq would likely necessitate revised estimates from the entire industry.

Apart from that one note of caution, with new impaired loan formations at their lowest level in several years, we expect to demonstrate BMO's credit quality advantage in 2003 - as we did in 2002 and over the preceding decade.

Slide 18
In February we reaffirmed our other financial targets for the year, anticipating that lower-than-expected provisions for credit losses would offset softer-than-expected economic growth. We continue to stand by these targets.

Furthermore, I made it abundantly clear as the year began that BMO's #1 priority this year is productivity improvement, and I want to restate that commitment today.

BMO has been above average within our Canadian peer group at containing organic expenses for the past five years.

However, as the U.S. economy continues to present challenges for market-sensitive businesses, costs associated with our acquisitions have had an impact on the cost side of our productivity ratio while the major strategic repositioning I mentioned at the outset, which produced an annual revenue shortfall of at least $634 million, has presented a special challenge on the revenue side.

In response, we have implemented expense reduction plans in every unit of the enterprise while addressing revenue growth through our transnational growth strategy in conjunction with a series of multi-year, enterprise-wide performance-enhancement initiatives. And we are continuing to pursue productivity improvement with utmost focus and determination.

Slide 19
Overall, we are generating solid returns for shareholders. January marked our 11th dividend increase in as many years, and we announced a 10 per cent increase in the quarterly common share dividend. Underscoring continued confidence in our strategy, we also increased the dividend payout goal to between 35 and 45 per cent of income.

Slide 20
For the 12 months ending January 31, 2003, the total return to BMO shareholders was 18.4 per cent, the best return of Canada's major banks. In the first quarter of 2003, shareholders earned a return of 9.2 per cent on their investment in common shares, above the peer group average. And the above-average trend is continuing despite recent market and political realities. As of March 31st, BMO's one-year total shareholder return was 7.15 per cent while our peers averaged negative 4.2 per cent.

Slide 21
In conclusion, let me just say that the situation regarding domestic bank mergers does not dampen my enthusiasm about BMO's future. And the reason is simply this: We don't need a merger to succeed, not with our enviable transnational assets, transformed business mix and terrific growth strategy, all of which are starting to produce the desired results.

Whether a merger does or does not become part of our future, we will remain firmly and resolutely committed to ongoing broad investment in our Canadian businesses as we continue to support knowledge-industry jobs in communities across Canada. And we will remain firmly and resolutely committed to ongoing, focused investment in the U.S. - as evidenced by last week's acquisition.

If and when a merger becomes feasible from our perspective, we will only consider partnerships that would be shareholder friendly, consistent with our vision and corporate values, and provide the resources and capital strength to speed up execution of our strategy.

Either way, we will continue along the transnational route we have chosen, pulling all the right levers to deliver above-average returns.

We are poised for success, in other words, whatever the future holds.

Slide 22
I want to thank you for your attention, and I look forward to your questions.