Tuesday, September 12, 2006

BMO Sets Long-Term Sights on China

Reuters, 12 September 2006

Bank of Montreal is looking to China, not India, for long-term international growth, President and Chief Executive Tony Comper said at an investor conference on Tuesday.

Referring to the bank's "small but significant" strategic investments in China, its underwriting role in Bank of China's' June initial public offering in Hong Kong, and the services in China it offers to North American clients, Comper said the heightened activity will take time to show results.

"Our modest investments do not yet make a significant contribution to our bottom line and quite frankly, they're unlikely to have a material impact on returns for a number of years to come," Comper said.

"Nonetheless, we believe that we're exceptionally well-positioned to take advantage of China's enormous growth," Comper said at a Toronto conference organized by Scotia Capital.

The bank, Canada's fourth largest, does not plan to become a big corporate lender in the Chinese market, but is concentrating on fee-oriented businesses such as mutual fund distribution, Comper said.

Businesses that are retail in nature need scale, which requires investment and takes time to recover, he said.

"We are covering our costs in China on a net basis, and so it's not a drag on profitability," he said.

Bank of Montreal has about C$3 billion in excess capital and will consider making acquisitions in the U.S. Midwest to complement its Harris operations in Chicago, Comper said.

Any acquired assets would have to be a good strategic, cultural and financial fit, with an internal rate of return of 15 percent, Comper said.

Population growth in the Midwest is not as fast as in some southern parts of the United States, he said, but regional income growth is strong and the Chicago-area economy is diversified.

In addition, Comper said, the Midwest housing market does not show signs of overheating.