BMO Chief Will Pursue More ‘Attention-Getting’ Offers

Bank of Montreal, the lender whose mortgage-rate promotion drew a rebuke from Canada’s finance minister last month, plans more “attention-getting” offers to win over customers, Chief Executive Officer William Downe said.

“We’re going to continue to look for ways to bring products to customers that we think are good for them and good for the bank,” Downe, 61, said yesterday in an interview in Saskatoon, Saskatchewan after the Toronto-based bank’s annual investor meeting. “We’re going to do it in a way that may be attention-getting, at least in the eyes of our competition, and that’s the way you grow your business.”

The lender’s offer of a five-year 2.99 percent mortgage rate elicited criticism from Finance Minister Jim Flaherty, who has sought to curb household spending among Canadians. The mortgage special ended March 28.

“We didn’t anticipate that it would provoke the reaction that it did,” Downe said of Flaherty’s response. “It was understood well by the market, it created traffic in the bank and I do not believe it was in conflict with the public-policy objectives of the government.”

Flaherty and Bank of Canada Governor Mark Carney have warned that mounting household debt threatens the country’s financial system and economy, which had its worst six-month performance in the second of half of last year since the end of the 2009 recession. The ratio of Canadian household debt to disposable income rose to a record 165 percent at the end of last year, according to Statistics Canada.

Mortgage Pricing

A similar mortgage offer at Manulife Financial Corp. (MFC) also drew a response last month from Flaherty, who said he didn’t want a “race to the bottom” on rates. Manulife withdrew a 2.89 percent promotional rate after consulting with the Department of Finance.

Flaherty shouldn’t interfere with mortgage pricing set by the country’s lenders, Bank of Nova Scotia (BNS) CEO Richard Waugh said earlier in the week.

“I understand why the finance minister is concerned about the Canadian economy, but I just philosophically don’t think” government should be setting product pricing, Waugh said during an April 9 interview in Halifax, Nova Scotia, where the bank held its annual shareholders meeting.

The finance minister has appropriately handled the message of his public-policy objectives, Downe said.

“The Minister of Finance should speak out and say what he thinks, and at the same time we were clear about the quality of the product,” Downe said. “I don’t believe there was any real conflict between our points of view.”

Shouldn’t Interfere

Bank of Montreal is pushing to add 1 million customers a year, building on its 12 million clients who are mainly in Canada and the U.S.

“In Canada, we have been creating energy in the market around things like the high-quality home mortgages we’ve been promoting, and that’s intended to give the front line the opportunity to build a customer base,” Downe said. “In capital markets, we want to be the lead manager and book runner on more issues, we want to be the principal M&A adviser, we want to help people with their financing and we want to help them grow their businesses.”

Downe said the drive to add customers is a goal for all parts of the company, including investment banking, wealth management and the consumer-lending business.

“Personal banking in both Canada and the United States are in a position they should be adding customers and doing that faster than the growth rate of the market,” Downe said. “That means growing share.”

Deposits, Branches

Bank of Montreal’s annual profit rose 35 percent to C$4.19 billion ($4.13 billion) for the fiscal year ended Oct. 31. The firm’s earnings were boosted by its C$4.1 billion takeover of Milwaukee-based Marshall & Ilsley Corp. in July 2011, which doubled the bank’s U.S. deposits and branches.

At the bank’s annual meeting in March 2011, Downe set a medium-term goal of generating earnings of C$1 billion a year from personal, commercial and wealth management in the U.S. Those businesses had generated C$184 million in 2010.

The lender’s U.S. operations are expected to meet the bank’s financial objectives, with higher levels of internal growth in the next three years, Downe said. The bank earned C$1 billion in the U.S. last year, he said.

“I still think personal, commercial and wealth on their own are capable of achieving C$1 billion and capital markets is probably going to continue to grow from where it is,” Downe said.

Bank of Montreal (BMO) is the top performer among Canada’s eight- largest banks this year, climbing 4.2 percent since January, according to data compiled by Bloomberg.

“I think the market is getting a clearer understanding of how the pieces of the strategy tie in to the North American footprint,” Downe said. “We talk about creating value in the medium- and long-term and that’s reflective of a better understanding of how these pieces will work.”

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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