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First, I want to thank you for inviting me to talk with you today. I’d never been to your beautiful campus, and it’s great to be here.
BMO Financial Group and Acadia have a few things in common, as it happens. First and foremost, Acadia is a client of the bank and has been for a very long time – more than 100 years.
So, we have a lot of history in common. More than that, though, I think we see the world in a similar way. We both put a high value on excellence, and respect, and the love of learning. That may sound a little odd coming from a banker, but if you don’t think that continuous learning – and applying the lessons you learn – is important to the survival of a company like ours, you would be sorely mistaken.
The financial world has experienced an awful lot in the past couple of years, and I’d like to talk a bit today about what we’ve learned. First, I’d like to talk a bit about what we’ve learned as an industry. But then I’d like to spend some time talking about some of the things we’ve learned about ourselves and some of the things we are doing at BMO Financial Group.
Finally, I’d like to talk a bit about careers in banking and what you might want to know if you are heading in that direction – but also some of the things you might not have considered if you are not heading in that direction.
And at the end, I’d love to hear from you and either answer your questions or discuss one of the points I’ve made in greater detail.
To begin, let’s take a few minutes to talk about the global financial crisis.
Unless you’ve been living under a rock – and, granted, when you’re a student, sometimes you can be a little “distracted” from what’s going on in the rest of the world – you know that we’ve just been through one of the roughest economic patches in a long time – some say since the Great Depression.
Of course, we’ve been through economic downturns before – in fact, they’re pretty regular; part of the business cycle. It’s almost an “once a decade” phenomenon – we had one in the 70’s, another in the 80’s, yet another in the 90’s, and all of you will probably remember the technology bust that ushered in the new Millennium, the so-called “dot-com bust.”
Typically, the downturn is precipitated by one part or another of the economy getting overheated and then collapsing – whether it’s commodities or whether it’s real estate or high tech. This time, it was our turn – financial services – the downturn may have been triggered by real estate and sub-prime mortgages, but, when you get right down to it, it was still a problem that was rooted in the financial markets.
And what was a little different about this downturn, and the reason people compared it to the Depression, was that it hit all of us – practically the whole world – at the same time, and it hit hard.
We’ve all been reading about the economy non-stop for the past 12 months, so I won’t re-hash the details here today, except to say that the crisis in financial markets is going to have some profound long-term effects.
The most obvious impact will be the world-wide movement to impose greater government control on the financial services industry – including some important changes to the way banks are regulated.
Interestingly, based on what we have seen so far, the world may settle on an approach that is pretty close to what we already do in Canada; I’ll come back to that in a moment.
And second, we have already started to see changes in the way the world is governed and the relative strength of various economies. Institutions that have been around since before most of us were born are coming, or are going to come, under intense scrutiny. People have been talking about “a new world order” for a long time and maybe we’re heading in that direction.
Instead of the G-7 or G-8, we’re going to be hearing about a much bigger group of nations, the G-20, which, importantly, will include nations like China and Brazil and India, for the first time.
And, in economic terms, it looks like the United States will no longer be the only superpower. Make no mistake: The United States will still be the most important military power, probably for the rest of our lives; and the United States will still be one of the most important economic powers as well – it will continue to be the source of innovation and wealth creation, again, probably for the rest of our lives.
But the important phrase here is, “one of.” Since 1991, when the Soviet Union drew its last gasp, until now, the United States has been the undisputed world leader. Going forward, we are seeing signs that it may have to share that leadership with a surging China and a still-powerful European Union.
Even the U.S. dollar is coming under pressure as the world’s one-and-only reserve currency. Central banks around the world added more than $400 billion to their foreign currency holdings last quarter, but for the first time nearly two-thirds of that new money went into euros and yen. For the past ten years, it had been the other way around: two-thirds of foreign currency holdings had been in U.S. dollars. We can’t be sure if this is the start of a long-term trend, but if it is, it could have enormous consequences for the global economy.
And to bring this full circle, one of the reasons we are in this situation, I would argue, can be traced straight back to the financial crisis – and the huge deficits it precipitated, particularly in the United States.
However these developments turn out, in Canada we can take some consolation that, in relative terms, we have fared reasonably well.
Our government did not have to “bail out the banks.” As a nation – and a trading nation – we are certainly not immune to what happens in the rest of the world, particularly what happens to our next-door neighbour, and we did suffer a recession. But, by all accounts, the recession here has ended. Our government did go into deficit, but not to put money into the financial system. All that government spending was targeted at stimulating the economy in order to make the recession shorter and less damaging – and, by that measure, it seems to have done the trick.
So, relatively speaking, things in Canada are pretty good. And the reason we’re doing better than nearly everyone else in the world is, I believe, in large part because our financial system in Canada is strong, well managed, well regulated and stable.
You’ve probably heard about the annual conference every winter in Davos, Switzerland; the one that attracts government and business leaders from around the world. It is the annual meeting of the World Economic Forum (WEF) – an independent not-for-profit organization that has become a driving force for shaping global economic and industrial strategies.
Every year this organization produces a Global Competitiveness Report that measures how countries stack up in terms of their ability to compete and thrive in the world economy. This year, Canada ranks 9th in the world on their chart, but there is one important measure where we rank number one. For the second year in a row, the WEF says Canadian banks are the soundest in the world.
Even at the height of the financial meltdown, Canada’s banks were strong and stable. A key measure of this is a company’s capital base – literally, how much money do you have in the bank to withstand losses.
And banks do sustain losses. Not every loan we make gets repaid. And when times are tough, more loans are likely to be unpaid. But that’s part of our business, and we plan for it.
Last year, however, was different. Some banks around the world hadn’t set enough aside. Some banks lost the confidence of their depositors and sustained a run on the bank. Some, therefore, closed their doors forever. In fact, in the United States so far this year, nearly 100 banks have closed down. There have also been bank closures in the U.K., France, and Germany.
But there have been none in Canada, and none are at risk in Canada. Canadian banks continue to generate profits, they continue to pay dividends, and they continue to make loans to customers.
All the banks reported their net earnings about six or seven weeks ago. Collectively, the six largest banks reported net income for the third quarter of nearly $4.7 billion. That was up 13% from the third quarter in 2008. And year to date, i.e., after three-quarters of the year, our earnings are up just under 12% from last year.
One of the key metrics regulators, rating agencies, and the market use to assess a bank’s financial strength are its capital ratios. Capital is held by banks to absorb losses that may arise in their business operations from credit, market or operational risks and Canadian banks have very strong capital ratios relative to international peers. BMO’s total capital ratio was 14.3% at the end of Q3, above the Canadian peer group average, and significantly in excess of the Bank for International Settlements (BIS) guideline of 8%. Pre recession, many international banks were holding capital below this 8% guideline.
Our more disciplined approach here in Canada is certainly one of the things that distinguish us from other banks around the world.
That doesn’t mean that we get it right every time – but Canadian banks also tend to be much more diversified. None of us is involved exclusively in mortgage lending – or automotive lending for that matter, or tourism, or any other single sector. We spread our lending across sectors, and across regions, and diversification is an antidote to excessive risk.
In other words, one of the other major things that distinguish us from the rest of the world is the quality of our risk management teams and philosophy. Also important is the nature of our working relationship with the regulators when it comes to risk management. Canadian banks have gained a reputation over the years for having a strong discipline of risk management. At BMO, we understand the risks; we quantify the risks; we set limits on the amount of risk we are willing to take on; and we mitigate the risks we take.
We also work very closely with the Office of the Superintendent of Financial Institutions (or OSFI) our primary regulator – they ask tough questions, we provide answers, and if the answers don’t satisfy their concerns, they let us know.
There is also a very close working relationship between OSFI, the Bank of Canada and the Ministry of Finance – as well as the Canada Deposit Insurance Corporation and the Financial Consumer Agency of Canada – each of which has a particular perspective on the industry as a whole. Together, they know what’s going on and what, if anything, needs to be done to ensure the safety and soundness of the system. And this idea of a “committee” to oversee the sector is gaining popularity in other jurisdictions, notably the United States.
All I can say is that our system in Canada has worked the way it was supposed to – the senior leaders and risk managers in the banks have made sound, consistent decisions over a long period of time, and our senior leaders in government – Finance Minister Flaherty, Bank of Canada Governor Carney, and the Superintendent of Financial Institutions, Julie Dickson – have managed the situation well over a very turbulent year or two and I’m pretty sure the government’s happy about the way Canadian banks have performed as well.
I’d like to shift gears a bit and talk for a few minutes about what’s happening at BMO. As you know, I run the retail side of the bank – in other words, the part of the bank that would be most familiar to all of you.
In my part of the bank, Personal and Commercial Banking, we have more than 16,000 employees serving 7 million Canadians through a network of more than 900 branches and 2000 banking machines (plus, of course, over the internet, through online banking, and over the phone). We have a particularly strong business here in Atlantic Canada.
Our everyday banking products are second to none. We are the largest MasterCard issuer in the country and our AIR MILES partnership is the best coalition loyalty program in the country. One in five businesses banks with us, making us a solid number two in market share – and we definitely have our sights set on being the number one Commercial Bank in Canada.
I’m proud of the leadership positions that we hold as an organization, but it hasn’t always been that way. When I first began this job three years ago, we were near the bottom in customer satisfaction, and our financial performance was significantly lagging the other banks. We knew we had to shake things up if we were going to lead once again.
In hindsight, and at the time, it was clear that we had lost sight of our customers. We were managing our business for us, and not for them.
It was around this time, three years ago, that, as a leadership team, we decided to invite some of our customers to come to our annual conference and tell us what they really thought about us. We watched and listened to actual customer interactions and listened to feedback from our customers about how they felt about our service levels.
It was an eye-opener. Historically, these conferences were meant to get us all fired up for the coming year, but it’s fair to say that I’ve never seen a more dejected bunch than our leadership team after that conference.
But that was just the “tipping point” – the “upset moment” – that we needed. It was clear that we needed to get back on track.
We committed then and there to see things through our customers’ eyes and put them at the centre of everything we do – and I mean everything.
Our vision is “to be the bank that defines great customer experience.”
We deliberately chose these words: If you are the bank that defines great customer experience, that means you are very different; that there is a significant gap between your performance and the next guy in the pack; it’s something you can feel. These words are aspirational and we believe that no other bank has the conviction required to compete with us for this space.
Customers told us that financial matters are complex and they want a bank that is willing to help. They want someone who sincerely listens to understand, offers clear choices and, most importantly, helps them choose the right solutions. They want a bank that helps them make sense of their money and their investments so they can be more confident in the future. This is why our brand promise is to bring clarity to our customers’ financial decisions.
The important thing is that all our employees, here in Canada and around the world, understand this. They recognize that it all starts with the customer, and they are aligned behind that vision and that brand promise.
I think we’ve made great progress in a short period of time. We’re making the right strategic decisions and we’re outperforming the competition on many fronts. The BMO Blue is once again very prominent in the marketplace. Our customers have noticed the change. They are much more satisfied and they are rewarding us with more of their business.
And since I’m on a roll, let me just say – and this is for all of you, not just the students in the room. If you’re not a BMO customer and you are not happy, we would love to have a shot at proving to you that we are different.
There’s one final point I wanted to discuss with you today: careers in banking.
As we have seen, the Canadian banks are doing well – both in relative terms, and in absolute terms. Canadian banks are out-performing the world.
Financial services is one of the leading contributors to Canada’s GDP – more people work in financial services than you probably imagined: more than in mining, more than in oil and gas – more even than automotive, even before the downturn. According to Statistics Canada, there are at least 680,000 people working in finance and insurance – at least 260,000 people work for a bank. More to the point, financial services jobs are often good, high-quality jobs.
But what is often overlooked is that financial services jobs cover a much broader spectrum than you may have imagined. Yes, we are looking for people with experience in sales, and people with business degrees, but it doesn’t end there. Banks are some of the biggest buyers of Information Technology and Communications expertise in the country. We hire accountants and lawyers and engineers and marketers and public relations professionals and human resources professionals – indeed pretty well every discipline you could imagine. On our trading floors, we hire mathematicians and physicists and computer software specialists – they don’t call them rocket scientists for nothing.
Banks are also acknowledged to be among Canada’s best employers – a welcoming workplace for women, Aboriginal peoples, people with disabilities, and people from all cultural backgrounds. Indeed, if you’re going to be customer-focused – and we are – then you want to deal with customers on their terms, on their conditions, and, where we can, in their language.
And as I said at the outset, we have one important thing in common with Acadia – that love of learning. All the banks put a high value on education, and continuous learning – and I happen to think that BMO is especially good in this regard. We encourage our employees to upgrade their credentials, and over the past five years, more than 5,000 of our employees have taken post-secondary courses for which we reimbursed their tuition. We have also established a state-of-the-art learning facility – the BMO Institute for Learning – that offers dozens of financial services and personal development courses delivered at our campus just outside of downtown Toronto. We have also established an Advanced Leadership Program, customized to our particular needs, in cooperation with the Rotman School – every one of our executives will be going through this program.
So, if you’re looking for a challenging career, where you will get formal training and development – a chance to improve your skills and grow. I’d strongly encourage you to consider the financial services industry.
We started off talking about the recession. The recession will end. At BMO, we’ve already hired 3,300 people this year (nearly 10 per cent of our workforce), so there are opportunities for you now – and they will only get better as we come out of the recession. There are jobs for you. And maybe, just maybe, one of Canada’s banks will be the place you choose.
I know I’ve covered a lot of ground over the past half hour, and we’ve gone over a lot of things pretty quickly. If you have any questions or want to discuss a point I have made in greater detail, now’s your chance.
Thank you.
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