17 March 2006

DBRS Confirms Ratings of BMO

Sale of direct investing operation strengthens U.S. businesses

Investment Executive, James Langton, 17 March 2006

Dominion Bond Rating Service today confirmed its ratings of Bank of Montreal.

The firm says that the ratings and stable trends reflect Bank of Montreal’s sizeable domestic franchise. DBRS says that the bank is focused on maintaining solid domestic consumer, commercial, and wholesale businesses, which it believes should contribute to strong profitability. BMO also has a favourable financial risk profile that positions the bank for growth opportunities through acquisitions or organically, it notes.

Additionally, BMO continues to grow its U.S. retail banking franchise, Harris Bankcorp Inc. In 2005, BMO management reiterated its desire to make more substantial acquisitions in order to become a U.S. Midwest super-regional bank.

In DBRS’s opinion, one of the primary challenges associated with its super-regional banking strategy is execution risk as future acquisitions are expected to be larger than historical purchases and outside of Harris’ contiguous footprint. “Historically, U.S. retail banking acquisitions have been within the Chicagoland area, where BMO has long-standing relationships with sellers,” it notes. “While the premiums accorded US banks is high, DBRS believes BMO will be disciplined in making a larger acquisition given its track record.”

During the year, BMO strengthened its U.S. businesses with the sale of its underperforming US direct investing operation Harrisdirect, it notes. “While not a material impact on the ratings of BMO, the sale does free up management time to focus on growing Harris, private banking, and investment banking operations in the US,” it suggests.