|
Thank you Mr. Cheng for those kind remarks.
It is a pleasure for me to be here at the Canadian Business Forum. And, before I move to my remarks, let me recognize Canadian Consul General, Mr. Paul Lau, a longtime servant of Canada and a good friend of the Bank of Montreal.
And Mr. Ke Ka Sheng, Vice President, People’s Bank of China, GZ Branch , our regulators.
It is a great pleasure for me to be back in China this week to learn first hand about what is happening in this great land, and especially to learn something about the early reactions to, and economic impact of China’s recent accession to the World Trade Organization.
While we can learn a great deal from media reports and other sources, none is as enlightening as having one-on-one discussions with those who are active here in the market itself.
It is also a particular pleasure for me to be back in Guangzhou, the leading industrial and commercial centre of southern China . As I traveled here by train from Hong Kong this morning, I couldn’t help but be struck once again by the diversity of the Pearl River delta -- not only the diversity of the scenery but the economic diversity of the cities around the delta.
I am also especially pleased that the Canadian Business Forum has invited me to talk with you today and that so many of you have taken the time to be here. Thank you.
As this is the Canadian Business Forum, and economic conditions are important to each of us, what I would like to do in the time available is give you a bit of an update on what’s going on in the North American economy.
Then, within that context, I want to talk about Bank of Montreal’s North American growth strategy. What we are doing in Chicago and Toronto, in Seattle and Vancouver may seem far removed from your immediate concerns in Guangzhou – but, in fact, our value to you, our clients and friends in China, is directly related to the strength of our North American base.
Finally, I would like to say a few words about the Bank’s presence here in Guangzhou and other parts of China and how we see that presence growing and developing.
So, let me begin with the North American economy. This past year has been economically challenging to say the least. The meltdown of the technology boom at the end of 2000 led, inevitably, to weak market conditions for most of 2001.
The U.S. economy, which led the global economic growth that characterized most of the ‘80s and all of the ‘90s, had slipped into recession. And then, just as the recession started to lift, the terrorist attack at the centre of New York’s financial district touched off a further period of uncertainty and doubt.
All of this had a negative effect on national economies all over the world. Once again the message was driven home. Globalization is not a concept – it is a reality. What happens in one country has an impact on every other country – especially when that one country happens to be the richest in the world with the largest economic engine.
The U.S. slow down certainly had a significant effect on both Canada and China. The United States is Canada’s largest trading partner and vice versa. Any slow down in the United States inevitably ripples across our long border with its many entry points. Although Canada actually avoided slipping into recession, business conditions did become much more difficult.
China has been better insulated from the downturn in the US economy than Canada has been. However, given the large volume of trade with the U.S., it was inevitable that exports from here would slow. Perhaps more serious, however, was the fact that China’s long-awaited accession to the World Trade Organization, coincided with the downturn in the U.S. and elsewhere. But as China implements the WTO agreement in spirit and in letter, the benefits will start to become apparent.
The good news about the U.S. recession is that it seems to be over. Certainly most of the preliminary data for the first quarter points that way. Domestic growth remained strong in the first quarter after having surged at an annual rate of nearly 4% in the fourth quarter. Although the growth rate in consumer spending had slowed it still remained strong. The offset to this slowing growth was that homebuilding was up sharply as people took advantage of historically low mortgage rates.
The strength in consumer spending in the fourth quarter had another direct consequence. It led to a record draw-down of business inventories. As a result, production finally turned positive for the first time in 18 months. First quarter industrial output was up at an annual rate of 2.5%.
Incidentally, the production of high tech led the gain. That suggests that those who ran obituaries for the technology revolution may have been a bit premature.
Unemployment still poses a challenge to the U.S. Non-farm payroll did increase in April for the first time in nine months. However, there was disappointment with the April unemployment rate which rose from 5.7% to 6.0%. This, however, reflected the fact that more people were coming back into the labour force. It is also not unusual for employment levels to lag behind in the early stages of an economic recovery as companies delay new hiring, until they are sure the recovery is sustainable.
One very positive sign was that although some factories cut jobs and many companies shortened working hours to avoid layoffs, there were signs that in some segments they were extending the workweek – a sure sign that they will soon be ready to rehire.
Looking down the road, we are confident that U.S. recovery is well underway. There will be bumps along the road, but generally we expect growth to remain strong for the rest of this year. And, with inflation remaining under control, the Fed is likely to move slowly to increase interest rates.
All of that is good news for Canada.
As key partners in the North American economy, what happens in the U.S. has great influence on what happens in Canada. The Canadian economy, having avoided slipping into recession, is already showing robust growth – even more so than in the United States. Employment growth has been surprisingly strong, exports are on the rise and industrial production grew strongly in January and February.
With Canada’s economic recovery moving ahead of the U.S., the Bank of Canada took the lead on April 16th in raising interest rates by a quarter point from their all time low. In fact the Canadian central bank was the first in the Group of Seven to start bringing interest rates back to more neutral territory from the highly stimulative levels of this past winter. The goal, of course, is to ensure that as growth returns, the risk of inflation is kept under control. As it stands now, we expect inflation to remain low – averaging below 2% through the end of this year.
Now, this bright economic picture is good news for Bank of Montreal. Our aggressive growth strategy in North America, and a strong economy will assist us in achieving our goals. As we grow in North America, we will be building an even stronger base for the range of services we are able to offer you here in Guangzhou. And, of course, we will be happy to make our full range of North American products and services available to any of our clients in China who have a need for them.
Let me outline our North American strategy: why we are pursuing it and what we hope to achieve.
As globalization continues to impact North America, consolidation among banks, brokerages and insurance companies will accelerate.
To some extent, the drive towards consolidation is more apparent in the United States than it is in Canada. That is primarily because of the different starting points in the two countries. Canada’s financial services industry has already undergone a high degree of consolidation.
In the Canadian banking business, for example, there are five major banks operating from coast to coast.
In the United States, on the other hand, where there are close to 8,500 banks, consolidation is just moving into full swing.
On the surface, this might suggest that the border defines a different regime depending on whether you are on the south or north side of it. In fact, that isn’t the case.
The process of consolidation is not confined by national boundaries. Consolidation is truly North American in scope with Canadian banks and other financial institutions actively pursuing growth in the United States. Historically, the banking, securities and insurance industries were separated by regulation, but with deregulation in the early 70’s, consolidation within the industry became possible.
One of the great strengths Bank of Montreal Group of Companies has in competing in this environment is the solid franchise we have established on both sides of the Canada-U.S. border. As Canada’s first bank, founded in 1817, Bank of Montreal is one of the ‘Big Five’ banks in Canada. We employ about 32,000 employees to serve our 7 million customers.
The services we offer cover all the major areas of financial services: from personal banking and wealth management for individuals, to serving small and medium-sized business needs as well as major corporate and investment banking clients.
This domestic position is reinforced by our well-developed presence in the U.S. Bank of Montreal has been active in the U.S. commercial banking market for almost 200 years, supplemented with an important acquisition in 1984, when we acquired Harris Bank in Chicago, a point in time where most Canadian banks were not expanding into the U.S.
We have had the opportunity to build Harris into one of the major banks in the Chicago area. An important market when you consider that the GDP of the Greater Chicago Area is 38% the size of the GDP of all of Canada. As the industry continues to consolidate we are working to ensure that Bank of Montreal emerges as one of the leading North American banks offering a full suite of financial products and services to personal, commercial, and corporate and institutional clients on both sides of the border.
Our strategy for getting there is simple and straightforward. It is a growth strategy: growth on both sides of the border. Our approach is to aggressively grow our presence in the US through targeted acquisition and greater organic growth, while continuing to invest in our established Canadian franchise.
Implementation of this strategy is underway across the Bank. To prepare for it, in early 1999, we organized ourselves into business groups that cut across the old business silos – and also cut across the Canadian-American border. These groups are: Personal Banking, Investment Banking, and Wealth Management.
Each of them has the same strategic mandate: to grow their business in both Canada and the United States. In the U.S., the Personal Banking Group is focused on Harris Bank and the Greater Chicago Area. With an already well-established branch network as a base, we were able to purchase the First National Bank of Joliet last year and expand our branch network in important suburban areas. We now have over 1 million customers - one household out of every five in the Greater Chicago Area has a relationship with Harris Bank.
In Canada, where there are few opportunities for our Personal Banking Group to grow through acquisition, the focus is on organic growth. By providing an integrated, seamless, high-quality service and a superior offering to the Bank’s six million Canadian customers we are focused on increasing its’ market share and on becoming the bank of choice for small and medium-sized business.
The Investment Banking Group combines all of the businesses serving corporate, institutional and government clients across a broad range of industry sectors. In the U.S. Midwest, the group serves mid-market clients under the Harris Nesbitt brand, with a specialization in food and agribusiness. We also serve institutional and government clients in the United Kingdom, Europe and Asia.
We offer clients complete financial solutions across the entire balance sheet, including treasury services, foreign exchange, trade finance, corporate lending, securitization, and public and private debt and equity underwriting. The group also offers leading financial advisory services in mergers and acquisitions and restructurings, while providing investing clients with industry-leading research, (ranked #1 for 21 years) and sales and trading services. (Also ranked #1 trader in Cdn equities).
The strategy of the Wealth Management Group is to help individual clients accumulate, protect and grow their financial assets. It’s target market is individuals with an interest in investing in the United States and Canada. Our approach includes a full suite of wealth management products -- mutual funds, full-service and direct investing, private banking as well as institutional asset money management – offering our clients the choice and flexibility they demand as investors. As I have already mentioned, our strategy in the US relies heavily on growth -- leveraging the 7 acquisitions we have made over the last 2 years for a total of $1 billion dollars within the wealth management business. We believe that acquired growth gives us the platform to accelerate organic growth. In our direct investing business alone we now have over 1.5 million total accounts (North America) and more than 20 investment centres across the United States. We also continue to invest in our mature Canadian franchise and have made an important acquisition within our mutual fund business, purchasing GGOF last year. This acquisition gave us entry into the investment dealer channel which is presently the fastest growing distribution channel for mutual funds. We have also invested heavily in growing our North American investment professionals to over 2,300 residing in over 700 distinct locations. These well-trained professionals can offer our 7 million North American clients more of our products and services, to deepening our overall relationship with them. It is our belief that there is tremendous opportunity for those who can truly deliver value to their clients. The Bank of Montreal is well positioned for the explosive growth anticipated for this business.
This may all seem far away from you here in Guangzhou, but I would suggest to you that, if you have important assets in North America, you may want to check out our unique, fully integrated private banking capability. Under one roof, we provide for all of our client’s needs for banking, investment management and estate and trust services. Because of our private banking capability in both Canada and in the U.S., we can provide North American solutions to our clients’ complex wealth management needs. Our unique competitive positioning has clearly been endorsed by our clients. We have seen significant growth within this business since 1999, despite declining equity markets --50 % growth in assets in fact.
Although our major strategic focus is to emerge as one of the leading full-service, fully integrated North American financial services institutions, we also have interests and business opportunities in other parts of the world. In fact, we believe that as we succeed in our North American goals, we can further enhance the value proposition we deliver to our clients in other locations of the world. We consider the business we are developing here in Guangzhou and in the rest of China to be among the most important long-term initiatives the Bank has outside of its North American base. And in fact, in all 3 areas, personal banking, investment banking and wealth management, we have initiatives underway.
China, and in particular Guangdong and its southern neighbours, represents exciting business opportunities for our clients. It is for that reason that the region also is of great interest to us. A bank mirrors the business needs of its clients and therefore you are the reason we are here. You also mirror the transnational strategy I have been talking about. In addition to many Canadian friends here today, we also have representatives from our clients and prospects in the United States, as well as, of course, from China itself.
Bank of Montreal has been doing business with China for a long time. Just one year after our founding –in 1818 in fact – we did our first China deal–a transaction in Spanish Gold. To use that over-used term: Bank of Montreal and China are truly “old friends”. In more recent times we began doing business with Bank of China in 1958. We opened our first representative office in Beijing in 1983 and our representative office in Guangzhou in 1994. Our very first modern branch in mainland China was established here in Guangzhou, and this was followed by the conversion of Beijing in 1997 and a representative office in Shanghai earlier this year. We have been operating a branch in Hong Kong since 1968. Thus in total we have four offices in China.
We are very proud of the range of services we currently offer in Guangzhou –from corporate financings, trade finance, foreign exchange, to providing information on Canada and Canadian Banking to people in the process of immigrating to Canada. Our range of services will expand with the WTO-related liberalization and we look forward to handling foreign exchange transactions with local Chinese entities very soon and to assisting our foreign invested clients with their Renminbi (Rmb) requirements hopefully early next year.
China’s joining the WTO, and the resultant easing of business restrictions for us and for most of our clients, is ushering in a new and exciting era for us all. With opportunities, of course, there are also challenges. These include increased regulatory capital requirements, among others, in the case of banks. When I go to Beijing in a day or two, representing our Chairman and Chief Executive Officer, Tony Comper, on the Mayor of Beijing’s International Business Advisory Council, I will take the opportunity to raise the issues surrounding the increased regulatory capital requirements for foreign banks operating branches in China, in the new era of WTO membership.
Although we regard the additional capital requirements as onerous and not conducive to attracting foreign banks to open more branches, our strategy in this regard is to participate in the new tiers of liberalization to the extent that is makes good business sense both for our clients, and of course, for the shareholders of our Bank.
Bank of Montreal has a very close working relationship with our Chinese banking partners – and that is certainly true here in Guangzhou and the region. There is a mistaken belief, I think, that after the market liberalizes, we will have weaker relationships with Chinese banks. I think nothing could be further from the truth. We do not view ourselves as competitors with Chinese banks after WTO, but rather as alliance partners. More business will mean we will have to work ever closer with our Chinese banking friends. And that, I believe, will benefit both the Bank and its clients here in Guangzhou.
I hope when you are considering your corporate and investment banking needs or personal wealth management needs, you will think of the Bank of Montreal as a trusted partner.
Thank you for listening.
|
