Bank of Montreal at Citi 2013 US Financial Services Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Stefan Nedialkov - Citigroup - Analyst : Okay. I'll start. In terms of your US business, you guys reported some pretty strong commercial lending results in the first quarter. You noted that your commercial real estate pipeline in the US is pretty strong. As a Canadian owner of a US regional bank, how do you see 2013 in terms of, number one, growth versus peers? And number two, how much margin you're -- how much NIM you're willing to give up in order to produce that growth?

Question: Stefan Nedialkov - Citigroup - Analyst : Sure. Now let's talk a little bit about your US business in the context of the overall group. Obviously, the US is on a recovery path. Most your competitors are preparing for the expansion, for more lending growth, et cetera. For you, right now, the US contributes around 20% of group net companies. MARCH 06, 2013 / 7:05PM, BMO.TO - Bank of Montreal at Citi 2013 US Financial Services Conference profit. What would you like that percentage to be five years from now? Are you happy with 20%? Would you want to have more exposure to the US given the relative growth differential between Canada and the US going forward?

Question: Stefan Nedialkov - Citigroup - Analyst : In terms of synergies from your M&I acquisition, you have upped the guidance up to around [CAD400 million] with around 90% of that being phased in by the end of this year. Is there a scope for additional synergies from -- maybe for 2014 onwards?

Question: Stefan Nedialkov - Citigroup - Analyst : I see. So moving more towards Canada, in a slowing domestic consumer market, in my eyes, you're actually one of the more uniquely positioned Canadian banks because you have the largest market share in business lending, according to the data that we have access to. The number two player is not very much far away from you, but you are still the top dog right now in terms of share. Yet, you have chosen to expand your mortgage book by offering very low, almost rock bottom, mortgage products such as a five-year fixed or even an 8 to 10-year fixed. What is driving you to expand in an area that is slowing, rather than building on your strengths in terms of business lending, something that is looking up in my view? companies. MARCH 06, 2013 / 7:05PM, BMO.TO - Bank of Montreal at Citi 2013 US Financial Services Conference

Question: Stefan Nedialkov - Citigroup - Analyst : In terms of your other residential exposures, you do have a fair amount of home equity lines of credit. I believe you are the second most exposed bank as a percentage of the total loan book at around 15% of your domestic loan book is held. It's not materially larger than most of the other banks, which are around 9% to 10%, and it's below one of your competitors who is around 20%. Yet that is the one product that could potentially keel over if the consumers slow down. And it's a product that introduces almost nonlinear risks, if you will. You just need a little bit of negativity in the economy, either from the construction sector, in employment, GDP slowing down overall, in order for the infection to start spreading. Do you think this is something that is -- is this risk overblown? Are people worried too much about it? And what are you doing to sort of mitigate the risk around your HELOC exposure overall?

Question: Stefan Nedialkov - Citigroup - Analyst : Does the LTV of less than 80%, is that applicable to both first and second lien, so the entire HELOC book? Or just on the first lien?

Question: Stefan Nedialkov - Citigroup - Analyst : Sure. And I asked this question of Janus right before you as well, very, very curious to hear your thinking. What will cause Toronto real estate prices to follow those of more Western cities such as Vancouver?

Question: Stefan Nedialkov - Citigroup - Analyst : Okay. Well, thank you. Can we open the floor for questions? companies. MARCH 06, 2013 / 7:05PM, BMO.TO - Bank of Montreal at Citi 2013 US Financial Services Conference Unidentified Audience Member I would just be curious to hear how you are thinking about your Capital Markets business, capital allocation within that. Are there certain businesses where you're going to keep pushing for market share and hope that returns follow? Sort of what's you're thinking on that?

Question: Stefan Nedialkov - Citigroup - Analyst : Any more questions? I have one more question for you. Your interest rate sensitivity as reported by yourselves has gone up over the past few quarters. I think you now would benefit by [CAD50 million] to [CAD60 million] in earnings from a 100 basis point increase, while just a few quarters ago the impact would have been negative. So this is quite a significant change in how you have positioned your balance sheet. Now, this is obviously most likely due to your view on interest rates going up over the short to medium term. What if that doesn't happen? What is the risk to your potential P&L and balance sheet if rates do not rise?

Question: Stefan Nedialkov - Citigroup - Analyst : Okay, great. Well, Tom, thank you so much for your time and for your insight. We'll be back in five minutes and we'll be meeting CIBC's CFO.