Investment Bank Heads Get Bigger Raises Than Bank CEOs

Bloomberg, Sean B. Pasternak and Doug Alexander, 8 March 2007

Canada's top investment bankers, including Charles Winograd at RBC Capital Markets and Brian Shaw of CIBC World Markets, had their average pay increased by more than a third last year after mergers soared to a record.

The heads of five of the six biggest securities firms were paid an average C$7.65 million ($6.48 million), up from C$5.67 million a year earlier. The 35 percent increase was seven times higher than the average pay bump for their bosses: the chief executive officers of Canada's largest banks.

``Investment bankers get paid a lot more because they're probably creating more value at this point,'' said Ravi Dharwadkar, an associate professor at the Martin J. Whitman School of Management at Syracuse University in Syracuse, New York.

Canada's six largest banks posted record profits for the fiscal year that ended Oct. 31, fueled by a 19 percent surge in the benchmark S&P/TSX Composite Index. Bankers advised on more than 2,300 takeovers involving Canadian companies in 2006, worth a combined $290.6 billion, according to data compiled by Bloomberg.

``It's been a very accommodating market for all of the capital markets businesses, whether it's trading or fee income,'' National Bank Financial analyst Robert Wessel said.

The pay calculations, based on filings to securities regulators, excludes Bank of Nova Scotia because Canada's third- largest lender didn't disclose compensation for the co-chief executives of its Scotia Capital unit.

Winograd, who heads Royal Bank of Canada's investment bank, received C$10.4 million in salary, bonus and stock options, a 73 percent increase from the year-earlier period. Toronto-based RBC Capital was the top arranger for stock and bond sales in Canada last year, and ranked seventh for mergers by dollar value, based on Bloomberg data.

Winograd, 59, ranked behind only his boss, Royal Bank CEO Gordon Nixon, and Toronto-Dominion Bank CEO Edmund Clark for total compensation among 30 bank executives whose pay packages have been disclosed in filings. Winograd declined to comment.

Robert Dorrance, 53, the CEO of Toronto-Dominion's TD Securities unit, received C$7.5 million last year, a 25 percent increase from a year earlier. Shaw, 53, chairman and CEO at Canadian Imperial Bank of Commerce's CIBC World Markets, received C$7.3 million, a 55 percent increase. Shaw didn't return a call seeking comment.

Yvan Bourdeau, 58, CEO of Bank of Montreal's BMO Capital Markets, received C$6.5 million in 2006, an 18 percent increase from the year-ago period. Louis Vachon, 44, who was CEO of National Bank of Canada's National Bank Financial arm until July, was paid C$6.54 million, up 6.5 percent.

The average pay increase for the investment bankers was 10 times higher than raises granted across the industry, and 22 times above the annual inflation rate. The average weekly earnings for workers in the finance or insurance industry rose 3.6 percent in December from the year-earlier period, according to Statistics Canada data released Feb. 26.

And the investment bankers got better increases than their bosses. The average pay for five of Canada's bank CEOs rose 5.2 percent to C$9.36 million. CIBC hasn't disclosed 2006 compensation for CEO Gerald McCaughey.

According to Dharwadkar, who studies executive compensation, Canadian investment bankers pale in comparison to their U.S. counterparts, who he says received 20 percent to 25 percent increases in bonuses alone last year.

Goldman Sachs Group Inc., the most profitable securities firm in history, paid $53 million each to its co-presidents last year, while Lehman Brothers Holdings Inc. gave CEO Richard Fuld a 17 percent raise to $40.5 million.

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Scotiabank Q1 2007 Earnings

Financial Post, Jonathan Ratner, 7 March 2007

Bank of Nova Scotia’s 20% year-over-year gain in first quarter profit to $1-billion provided a boost for the company’s stock after a downward run since late February.

Analysts liked the results, which included lower loan loss provisions than some had expected.

Michael Goldberg at Desjardins Securities maintained his $57 price target on Scotiabank shares, while upgrading his rating to “top pick” from “buy.”

It remains one of the best managed banks among the big six in Canada, Mr. Goldberg said in a research note, adding that Scotiabank’s international expansion has been a great success.

“Scotia’s unorthodox strategy has been bearing fruit and demonstrates that it can achieve growth without sacrificing return,” he said.

Over at UBS, analyst Jason Bilodeau is even more optimistic, raising his recommendation on BNS shares to “buy” from “neutral” and hiking his price target by $2 to $58. This represents upside of roughly 14% from Tuesday’s close.

He said the bank’s domestic operations appear to be on pace for reasonable results, while superior growth could come from its international operations in the medium term.

“Having underperformed amid general market weakness, we believe valuations are looking better with room to return to a premium,” Mr. Bilodeau said in a research note, adding that the bank’s recent acquisitions should help results in the second half of 2007.

Blackmont Capital’s Brad Smith has a “buy” recommendation on BNS shares and hiked his price target to $61.

National Bank Financial analyst Robert Wessel rates the stock an “outperform” with a $59.00 target.

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TD Newcrest, 7 March 2007

Event

BNS reported operating EPS of $1.01 ahead of our estimate and consensus of $0.94. Strong results were driven by international operations and the wholesale division. A skeptic might lower the operating EPS number to be closer to $0.98 given that reported results included investment security gains roughly $30 million higher than historical run-rates, and a large PCL reversal in Scotia Capital.

Impact

Positive. We are increasing our 2007 and 2008 EPS estimate to $3.93 (from $3.80) and $4.30 (from $4.15) respectively, reflecting strong asset growth and excellent operating leverage in both the domestic and international businesses. We are raising our 12-month target price to $60.00 (from $57.00), and maintaining our Action List Buy recommendation.

Details

Canadian retail results were slightly above our expectations, with cash net income of $367 million (Exhibit 2 provides more detailed financial highlights), increasing 10% year over year reflecting:

• Stellar asset growth up 12.3% year over year, albeit partially boosted by the acquisition of Maple Trust. The full positive earnings impact of the Maple Trust deal should materialize in 2H 2007.

• Impressive efficiency improvements (down 120bps yoy) despite continued spending on growth initiatives.

• Mutual fund results turned around, with net flows improving meaningfully. This is the second consecutive quarter we were positively surprised by wealth management results. Management appears to be executing its plans very well.

International operations had yet another spectacular quarter, earning $317 million (up 34.3%) – well above our expectations. The increase was attributable to widespread organic growth in virtually every product category as well as significant contribution from acquisitions (added $41mln yoy) in Latin & Central America and the Caribbean. Integration efforts have also exceeded expectations reflecting efficiency improvement (down almost 200 bps). Even more impressive is that results were achieved despite BNS’s aggressive branch expansion strategy, which incurs up-front costs. We believe that BNS’s international operations provide investors a unique growth opportunity, and the momentum from the division appears far from slowing. Of note, while the disclosure on Mexican credit is somewhat still puzzling, we have gained comfort that the simple answer is that credit within Mexico is well managed and losses are at low rates.

Wholesale banking results were ahead of our estimates this quarter, primarily due to healthy investment banking income, credit loss recoveries, and higher than normal investment securities gains, offset slightly by moderate trading revenues.

• Trading revenues of $294 million (down qoq and yoy) were a slight disappointment given the strong trading results experienced by most peers, however, management anticipates a good overall trading year.

• Global corporate and investment banking revenue growth was solid (up 20% yoy) reflecting strong loan volume (in Canada, US and Europe), interest recoveries from impaired loans and overall strong investment banking environment.

• Investment securities gains were $127 million, roughly $30 million higher than the 8-quarter average. We remind however, that unrealized security gains remain above $1 billion.

• The credit environment remains benign with net credit reversals of $30 million recorded. Tier 1 capital was healthy at 10.4%, despite strong growth in risk-weighted assets (up 22.4% Y/Y). The bank did not increase its dividend this quarter and we were disappointed to see that management did not buy back any shares. The bank maintains over $1 billion in unrealized securities gains.

Justification of Target Price

Our $60.00 BNS target price is a product of adding 50% of the $59.00 value derived from our 2007 P/E multiple of 13.5 times to 50% of the $60.92 value derived by our 2007 price-to-book of 3.33 times.

Key Risks to Target Price

We believe that the key risks include: a) a deterioration in the geopolitical situation in one of the bank’s international markets (most importantly Mexico); b) a tougher credit environment which could lead to credit losses due to the bank’s more aggressive U.S. corporate lending strategy; c) the bank paying a significant premium for an acquisition; d) the deterioration of the USD and e) higher interest rates.

Investment Conclusion

In summary, a stellar quarter (reflected in the impressive 23% ROE) driven by explosive international revenue growth, and firmly supported by solid domestic retail and investment banking. BNS shares have been the worst performing of the CDN banks year-to-date. We continue to believe that long-term investors will be rewarded by owning shares in this well-managed bank which is investing for the long term, at the partial expense of even stronger short-term earnings growth. Despite what we view as above average long-term earnings growth potential the stock is trading at 12.9 times 2007 EPS, roughly in line with peers. We reiterate our Action List Buy recommendation.

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Bloomberg, Sean B. Pasternak, 7 March 2007

Bank of Nova Scotia, Canada's third- biggest lender, plans to open investment banks in countries such as Peru and Chile to do more business with mining clients, said Stephen McDonald, co-chief executive officer of Scotia Capital.

``With a relatively modest investment on our part, we think we can leverage some of these markets,'' McDonald said in an interview in Halifax, Nova Scotia. ``We're going to be more aggressive on that front over the coming years.''

Scotiabank, as the Toronto-based lender is called, wants to expand its investment banking operations in some of the 50 countries where it offers consumer banking. Establishing new offices as early as 2008 would ``make sense'' in countries such as Peru, where Scotiabank runs the third-largest consumer bank, or Chile, where it has mining clients.

``Our strategy is one to follow the bank, and follow our customers,'' McDonald said, following the bank's annual shareholders meeting yesterday. ``Other markets are possible.''

Bank of Nova Scotia expanded its Scotia Capital investment banking business in Mexico in 2005 after it increased its controlling stake in Grupo Scotiabank. The Mexican investment bank, which offers corporate banking, fixed income and other products, employs about 100 people and will probably hire more, McDonald said.

Expansions in Chile and Peru may help win more business from mining clients. Bank of Nova Scotia last year paid $330 million for Peru's Banco Wiese Sudameris SA. The economy in Peru, the world's biggest silver producer, expanded 8 percent last year, following growth of 7.6 percent in 2005. The bank also owns Scotiabank Sud Americano SA in Chile. That country is the biggest copper producer in the world.

Scotia Capital has spent the past six months rebuilding its mining division in Canada, after losing out on transactions such as Cia. Vale do Rio Doce's $16.7 billion purchase of Toronto- based Inco Ltd. last year. Scotia Capital ranked 11th in 2006 among banks advising on Canadian mergers, and 12th the previous year, according to data compiled by Bloomberg.

The firm hired George Brack from MacQuarie Bank Ltd. last year to head a group of about 10 people in Vancouver and Toronto, and is looking to hire three or four more in the sales, trading and research areas of that unit.

``We've been underinvested in the mining sector, so we made a commitment to growing it,'' said McDonald, 50, who was promoted to his new post along with John Schumacher in 2005 to replace David Wilson, chairman of the Ontario Securities Commission. ``We feel we've got a top quality (merger and acquisition) advisory team in place now.''

Scotia Capital is also looking at selling more services to hedge funds. The bank has ``really good relationships'' with about 35 funds and would like to increase that to about 100, McDonald said.

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Financial Post, Duncan Mavin, 7 March 2007

Bank of Nova Scotia yesterday became the latest Canadian bank to defy predictions of a credit downturn after record first-quarter results showed the bank is setting aside less for bad loans than many in the industry had expected.

Scotiabank said it earned $1-billion in the first quarter of 2007, up almost 20% from $852- million a year ago. The bank's results, revealed at its annual meeting in Halifax, were partly helped by a low loan loss provision of $63-million, down 20% from $75-million last year.

"Two and a half years ago, everyone was worrying about credit quality and we still haven't seen it," said an analyst who covers the industry.

"All of the analysts on the street are hyper-sensitive to this but we just aren't seeing anything.

"As soon as we do, we'll all jump on the bandwagon."

The banks say loan losses are low because of the strong Canadian economy and because they say they have improved their loan-approval processes and risk management capabilities in recent years.

The provision for loan losses at Scotiabank "may be unsustainably low," said Genuity Capital Markets analyst Mario Mendonca. Scotiabank set aside less for bad debt than last year even though there was a 21% increase in the average amount it lends to borrowers, Mr. Mendonca noted.

The first-quarter provision for loan losses fell at Canadian Imperial Bank of Commerce and was unchanged from last year at Bank of Montreal.

Royal Bank of Canada and Toronto- Dominion Bank both had an increase in their loan losses, but the overall level of provisions remains at a historical low compared to the amount of loans outstanding.

Despite loan books that continue to grow, the total loan-loss provisions for the big five Canadian banks remains low. The group's total provision for credit losses for the first quarter of 2007 was less than $585-million, an increase of only about a quarter from$454-million last year. Some analysts had expected the total provisions for the group to increase by a third.

Banks in other countries, including the United States and the United Kingdom, have recorded significant increases in the size of their loan-loss provisions recently. But Canadian bankers have argued their loan books don't have the same credit quality profile as banks elsewhere that lend to riskier borrowers.

However, Scotiabank's management acknowledged that loan losses could be set to rise.

"Looking at the balance of 2007, we expect credit losses to rise somewhat," said Brian Porter, the bank's chief risk officer.

For now, Scotiabank is basking in its first billion-dollar quarter, driven by strong performance from its international division.

Scotiabank's overseas operations churned out profit of $316-million, up 36% from $233-million last year. The international group grew through acquisitions in Peru, Costa Rica and the Dominican Republic in 2006. Almost a third of the bank's profit comes from outside of Canada.

Chief executive Rick Waugh told investors at the annual meeting the bank will continue to look for growth in the Americas and in Asia.

"This is so unique to Scotiabank," Mr. Waugh said. "There are very few banks that have an international footprint and perspective like ours."

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Bloomberg, Sean B. Pasternak, 6 March 2007

Bank of Nova Scotia, the last Canadian bank to report first-quarter results, said profit topped C$1 billion ($849.8 million) for the first time, led by higher earnings at its international unit.

Net income for the period ended Jan. 31 rose 20 percent to C$1.02 billion, or C$1.01 a share, from C$852 million, or 84 cents, a year earlier, the Toronto-based bank said today in a statement. It was the biggest profit increase in almost three years, and beat analysts' estimates.

Profit from the international unit of Canada's third- biggest bank, which includes operations in Mexico and the Caribbean, rose 35 percent, or three times faster than the domestic bank, after the lender spent more than C$1 billion to buy banks in Peru and Costa Rica.

``International operations continues to underpin Bank of Nova Scotia in their ability to deploy capital in markets with higher growth prospects and margins,'' UBS analyst Jason Bilodeau said today in a note to clients.

Scotiabank bought a 68 percent stake in Jamaica's Dehring Bunting & Golding Ltd. investment firm during the quarter and agreed to buy 10 percent of First BanCorp in Puerto Rico last month for about $94.8 million. International banking profit rose to C$318 million, from C$235 million, accounting for 31 percent of profit, compared with 25 percent in fiscal 2004.

``I think that it's a positive thing for a bank to be participating in global markets as long as they do it in a disciplined manner,'' said Jackee Pratt, who helps manage C$750 million in assets, including Scotiabank stock, for Mavrix Fund Management Inc. in Toronto.

Scotiabank shares rose 95 cents, or 1.9 percent, to C$50.63 at 4:15 p.m. on the Toronto Stock Exchange, the biggest gain in more than six months. The stock has declined 2.8 percent this year.

Profit from Latin America and the Caribbean, excluding Mexico, led growth at the international unit, rising 71 percent to C$212 million. Profit from Mexico rose 5.7 percent to C$147 million as higher revenue was offset by rising costs for advertising and new branches.

Scotiabank is looking for acquisitions in all three of its main business units, Chief Executive Officer Richard Waugh said today at the annual meeting in Halifax, Nova Scotia. He didn't elaborate.

International expansion is tempering slower growth at home in consumer lending and asset management. Domestic consumer banking earnings rose 9.7 percent to C$363 million on higher fees from mortgages, credit cards, deposits and mutual funds.

The bank's mutual fund assets have climbed 10 percent in the last year, trailing the 21 percent growth at Royal Bank of Canada and 16 percent at Toronto-Dominion Bank, according to the Investment Funds Institute of Canada. Scotiabank was the 11th biggest mutual fund company at the end of February, below its four main bank competitors.

``The mutual fund offering has not been particularly strong,'' said Gavin Graham, chief investment officer at Guardian Group of Funds in Toronto, which manages about $5.1 billion in assets. ``Unlike Royal, TD and Bank of Montreal, they and CIBC have been suffering some market share losses because they haven't had a particularly compelling offering in that space.''

Scotiabank earned C$68 million in revenue from mutual fund sales, up 17 percent from a year earlier. Scotiabank said it's putting more emphasis on investment products as it plans to open 35 branches and add more than 300 salespeople in Canada in 2007.

Investment-banking profit increased 14 percent to C$296 million. The bank advised on eight mergers valued at $6.06 billion during the quarter, according to data compiled by Bloomberg, compared with six mergers valued at $1.76 billion a year ago.

Scotiabank set aside C$63 million for bad loans, compared with C$75 million in the year-earlier period. The bank said it may not be able to sustain the low level of provisions throughout the year. Total trading revenue slumped 25 percent to C$247 million.

The bank also applied for a license in Texas to be able to take deposits from corporate clients in the U.S., Stephen McDonald, co-head of Scotia Capital, said in a conference call with analysts.

Excluding one-time items, Bilodeau said Scotiabank earned C$1.02 a share, 8 cents more than his estimate. The bank didn't provide a comparable number on that basis. The bank was expected to earn 95 cents a share, according to the median estimate of 10 analysts polled by Bloomberg News. Overall revenue rose 14 percent to C$3.21 billion.

Bank of Nova Scotia is the fifth Canadian bank to top analysts' estimates in the first quarter, along with Royal Bank, Toronto-Dominion, Canadian Imperial Bank of Commerce and National Bank of Canada. Bank of Montreal met estimates.

The banks benefited from rising demand for mutual funds, sparked by higher stock prices. They also posted higher trading revenue and advisory fees, after mergers soared to a record in 2006.

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Flaherty Makes Case for ATM Fee Flexibility

Bloomberg, Doug Alexander and Sean B. Pasternak, 6 March 2007

Bank of Nova Scotia, Canada's third- largest bank, doesn't have any immediate plans to heed a request from the country's finance minister to lower fees for automated- teller machines.

``We have a very competitive offering,'' Chief Executive Officer Richard Waugh told reporters today in Halifax, Nova Scotia. ``Our customers will make their choices. If we're not competitive then we'll react.''

Executives from Canada's six biggest banks met Finance Minister Jim Flaherty yesterday to discuss ATM fees that lenders charge customers of opposing banks. Flaherty urged the banks to reduce the fees for low-income clients such as seniors, students and disabled people. Flaherty told reporters after the Toronto meeting that he expects some banks to respond to his concerns.

Banks including Toronto-Dominion Bank, the No. 2 lender, have so far resisted making changes to their fees.

``We do believe we have attractive packages for several groups, including seniors,'' Toronto-Dominion spokesman Neil Parmenter said today. ``As of now, there's no announced change or impending change.''

Royal Bank of Canada, the country's largest lender, hasn't announced changes to its fees in response to Flaherty's meeting.

``We do continuously review our banking packages to ensure that we're delivering the best value,'' spokeswoman Beja Rodeck said. Royal Bank has 3,873 machines, the largest network in Canada.

Officials at Canadian Imperial Bank of Commerce and Bank of Montreal weren't immediately available for comment. National Bank, the country's sixth-biggest lender, is studying the matter.

``National Bank has made no commitment one way or another regarding ATM fees,'' spokesman Denis Dube said. ``We have banking packages for seniors and students that are very affordable and, as do other financial institutions, we revise our packages on a regular basis.''

Canadian Prime Minister Stephen Harper said that the government wants to ensure there's competition, and that consumers have low-cost choices.

``Like every other Canadian, when I get them from time to time, they annoy me,'' Harper told reporters in Toronto today. ``The government, as you know, is loath to interfere in the marketplace.''

Flaherty, 56, met the executives after New Democratic Party Leader Jack Layton called on him to amend banking laws to eliminate the fees. Canadian consumers paid C$420 million ($357 million) in cash machine charges in 2005, according to Layton. Flaherty has said he has no plans to impose new rules.

In a letter to the chief executives of the country's five biggest lenders last month, Flaherty said he's received a number of complaints about the fees and asked what ``options'' are available for cutting some of the charges.

The nation's banks say eliminating the fees would take away their incentive to build cash machines, and would give an unfair advantage to so-called ``white-label'' ATMs in grocery and convenience stores.

Waugh said most of his customers don't pay bank-machine fees, and that the bank will monitor its fees to make sure they are competitive.

``We share the minister's concerns,'' Waugh said after the bank's annual meeting. ``I think everybody wants to be able to ensure that they're getting the best price and service they can, and we heard his message.''

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Financial Post, Scott Deveau with files from Duncan Mavin, 6 March 2007

Finance Minister Jim Flaherty was accused yesterday of "watering down" his promises to get tough on Canadian banks over ATM fees.

Mr. Flaherty met with the CEOs of Canada's big banks yesterday to press them to lower fees charged when customers use a rival's bank machine. He told reporters the meeting was "frank and direct," and while he was not expecting an immediate response, he maintained he had conveyed the concerns of Canadians to the institutions.

In particular, he said he wanted to know how the banks would respond to those with low-income Canadians, such as seniors, students and those with disabilities, who may have a limited mobility and choice in which machines they use.

"I expect that some of the banks will respond to the concerns of Canadians," he said. "It's up to them how they respond."

The key message the banks wanted to get across to the minister was that each of the banks has a different ATM offering and that there is currently a lot of choice in the marketplace, a senior executive at one of the banks said yesterday.

In general, the banks were happy with the outcome and with the opportunity to convey their side of the story, he said.

"I wouldn't say he backed off, but he realized the complexity of the issue," said the banker.

Several of the banks contacted by the National Post yesterday said they were still considering their response to Mr. Flaherty.

However, the Finance Minister came under immediate attack from NDP, which originally brought the issue forward and pushed it onto the Tory agenda.

"What happened to the tough guy approach?" NDP finance critic Judy Wasylycia-Leis asked yesterday. "He went in saying he was going to send a strong message, that he had the power to legislate and he walked away without any commitments."

The NDP estimates that about $420-million is collected in ATM fees each year in Canada.

The banks defend charging fees to non-clients because there is substantial cost involved in building and maintaining their proprietary ATM networks.

Ms. Wasylycia-Leis said she rejects that argument, noting that the combined earnings of the major banks amounted to almost $19-billion last year. She said the banks have ample resources to reinvest in their networks without charging ATM fees.

She also criticized the Finance Minister for focusing solely on low-income groups.

"This is an issue that affects people across the board," she said.

In Canada, the fees normally range from $1.50 at banks to $2.50 from private vendors, but are much lower than in other countries, according to the Canadian Bankers Associations.

Mr. Flaherty said the banks also noted during the meeting that the highest fees are charged by the so-called white label machines, which are privately owned and are found in convenience stores and bars.

There are now 35,000 non-bank ATMs compared with fewer than 16,000 owned by the banks, and the financial institutions argue that the proliferation of the white label industry is proof that Canadians are willing to pay for convenience.

Mr. Flaherty said the white label industry was not in the "banking business" and did not fall under this purview.

He would not say yesterday whether he planned to legislate changes if the banks didn't respond to the concerns raised.

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The Globe and Mail, Tara Perkins & Sinclair Stewart, 6 March 2007

Federal Finance Minister Jim Flaherty walked away from a lengthy lunch with executives of Canada's six biggest banks unable to report that they will lower ABM fees, but hopeful that some will soon offer cheaper options to seniors, students and people with disabilities.

At least one of the banks said after the meeting that it will not be lowering fees, but the issue might get a "little bit of traction," according to someone who was at the meeting.

"People, with their ongoing reviews [of fees and banking packages], will start to factor this in," the person said.

After the 90-minute meeting at a Toronto hotel, Mr. Flaherty told reporters he spoke to the banks about his commitment to choice and competition, and pointed out his concern about the fees banks charge when a customer uses an ABM from another bank. He said his particular concern was for lower-income Canadians, especially seniors, students and the disabled.

"I did not expect a response as a group from the banks with whom I met, nor would it have been appropriate for them to respond as a group," Mr. Flaherty said, noting the banks are in competition. "I expect that some of the banks will respond to the concerns of Canadians which I expressed to them."

At least one bank said it does not plan to act.

"There is no plan to lower our ABM fees at National," said National Bank of Canada spokesperson Denis Dubé. The bank revises its banking packages regularly to meet consumer needs, and "we have, I think, a very good package for seniors and students," he said.

The bank's chief executive officer, Réal Raymond, attended the lunch, as did the CEOs of the other major banks with the exception of Bank of Nova Scotia CEO Rick Waugh, who was preparing for that company's annual meeting.

The point of the meeting with Mr. Flaherty was "to listen to each other," said Toronto-Dominion Bank spokesman Neil Parmenter. "Today wasn't about an outcome."

NDP finance critic Judy Wasylycia-Leis said she was disappointed. Mr. Flaherty had "acted like Mr. Tough Guy up until today," she said. "He said that he could bring the force of the law to bear, and so we were hoping that in fact we would see some real progress. . . . It sounds like he softened his approach and is leaving it up to the banks themselves."

She also said the minister is now talking about targeting certain groups "when this is an issue that affects Canadians right across the board."

Royal Bank of Canada CEO Gord Nixon, who attended the lunch, said last week that the ABM fee issue was becoming "regrettably politicized."

At yesterday's press conference, Mr. Flaherty said that the banks pointed out that they have different strategies. "Some of the banks are more heavily invested in ABMs than others, some are more invested in branches than others," he said. "It's up to them how they respond."

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RBC Q1 2007 Earnings

Scotia Capital, 5 March 2007

Q1/07 Earnings Increase 32%

• Royal Bank (RY) reported a 32% increase in cash operating EPS to $1.16 per share versus $0.88 per share a year earlier the strongest results of the bank group.

• Cash return on equity was a remarkable 27.5% versus 23.6% a year earlier. Return on risk weighted assets was 2.55% versus 2.27% a year earlier.

• Earnings growth was stellar in all business lines. Canadian Personal & Business, RY's largest earnings component representing 60% of earnings, adjusted operating earnings increased 20% year over year driven by Wealth Management, Insurance and Retail banking.

RBC Capital Markets earnings increased 34% driven by strong trading revenue and capital markets revenue. U.S. & International P&B earnings increased 45% driven by wealth management.

• Overall revenue growth was very strong at 15%, or 17.3% excluding insurance, with very high operating leverage of 5.8%.

Dividend increased 15%

• RY increased its dividend a significant 15% to $1.84 per share from $1.60 per share with payout ratio of 41% on our 2007 earnings estimate which is in the lower end of target range of 40%-50%.

Strong Revenue Growth Major Earnings Driver

• RY’s leading earnings momentum is being driven by excellent revenue growth at 15% in the quarter. Revenue growth was supported by strong trading revenue and solid revenue growth across a broad range of bank products. Revenue growth excluding the impact of insurance was 17.3% against comparable non-interest expense growth of 11.5% for high positive operating leverage of 5.8%. Expense growth was driven by 19% increase in variable compensation and 14% increase in salaries.

Solid Retail & Wealth Management Earnings

• Canadian Personal and Business (P&B) cash earnings increased 20% to $879 million from a year earlier excluding the $61 million hurricane-related charge in Q1/06.

• Revenues in the Canadian P&B segment increased 13.1% with expenses increasing 7.8% producing high operating leverage of 5.3%. Revenue was strong across all products, excluding the Global Insurance operations; revenue was up 8% while expenses declined 1%.

• Leading revenue growth in the quarter was Wealth Management at 14%, reflecting strong net sales and growth in mutual fund assets.

• Mutual fund revenue increased 5% sequentially and 36% from a year earlier to $354 million. RY led the industry in long-term asset (LTA) net sales with a 20% market share in Q1. Mutual Fund assets (IFIC) increased 21% from a year earlier to $73.3 billion.

• Loan loss provisions increased to $182 million versus $173 million in the previous quarter and $142 million a year earlier. LLP increases were in personal unsecured credit loans, small business loans and credit cards.

Canadian Retail NIM Improves 2 bp

• Underlying retail NIM increased 2 bp from a year earlier to 3.26%, but declined 4 bp sequentially remaining relatively stable.

• We are forecasting modest retail NIM improvement in 2007 and 2008, supported by the higher level of short-term interest rates. A source of positive earnings surprise would be more meaningful margin expansion, which is very possible, depending on competitive pressures.

U.S. & International P&B Earnings

• U.S. & International P&B Q1/07 cash earnings increased 45% YOY to $161 million with revenue growth of 13% and expense growth of 8%. Revenue growth was particularly strong in wealth management at 18% with banking revenue growth more modest at 5%.

• Net interest margin was flat sequentially at 3.08% but declined 26 bp from a year earlier.

RBC Capital Markets Earnings Increase 34%

• RBC Capital Markets Q1 earnings increased 34% to $426 million due to strong trading results and higher M&A fees.

• Operating leverage was high in Q1 at 10%, with revenue increasing 38% and expenses increasing 28%.

Trading Revenue Very Strong

• Trading revenue increased 40% to a record $652 million representing 11.3% of total revenue versus $447 million representing 8.3% of revenue in the previous quarter and $465 million representing 9.3% of revenue a year earlier. Strong trading revenue added an estimated $0.05 to $0.07 per share to earnings.

• Strong trading results are across all product areas, with product and geographic expansion the major driver for the higher trading revenue.

Capital Markets Revenue Solid

• Capital markets revenue was strong at $611 million, increasing 4% from $589 million in the previous quarter, and increasing 16% from $528 million a year earlier.

• Securities brokerage commissions were strong at $323 million with underwriting and other advisory fees at $288 million, an increase of 31%.

Market-related revenue

• RY’s reliance on market-related revenue is moderate, with security gains, trading, and capital markets revenue representing 23% of total revenue.

Security Gains Remain Negligible

• Security gains were once again modest in the fourth quarter at $48 million or $0.02 per share versus $0.01 per share in the previous quarter and $0.02 per share a year earlier.

• The bank continues to have very low reliance on security gains.

• Unrealized security surplus was $255 million at quarter-end (now contained in AOCI) versus the $365 million surplus at the end of the previous quarter and $62 million a year earlier.

Loan Loss Provisions Increase

• Specific loan loss provisions (LLPs) increased to $162 million or 0.28% of loans, versus $159 million or 0.29% of loans in the previous quarter, and $97 million or 0.19% of loans a year earlier. The modest increase in LLPs was due to higher loan losses on increased personal loans, small business loans and credit cards.

• Our 2007 and 2008 LLP estimates remain unchanged at $600 million or 0.27% of loans and $700 million or 0.31% of loans, respectively.

Loan Formations Stable

• New impaired loan formations were $311 million versus $309 million in the previous quarter and $270 million a year earlier. Net impaired loan formations were $237 million versus $245 million in the previous quarter and $190 million a year earlier.

Tier 1 Ratio Declined to 9.2% - RWA Growth

• Tier 1 capital declined to 9.2% versus 9.5% a year earlier due to a 19% increase in risk weighted assets. Market at risk increased 30% to $19 billion.

• The common equity to risk-weighted assets (CE/RWA) ratio was 9.0%, compared with 9.4% in the previous quarter and 9.6% a year earlier.

Share Buybacks

• This quarter RY repurchased 7.6 million shares at an average price of $54.15 per share for a total of $414 million.

Recent Events

• On January 11, 2007 RBC Capital Markets announced the completion of its acquisition of Daniels & Associates, L.P., the most active M&A advisor to the cable, telecom, and broadcast industries in the U.S. Terms of the transaction were not disclosed.

• RY announced on February 7, 2006 that beginning in Q2/07 it will report financial results for its Wealth Management segment. We expect this would be positive for the bank, given RY’s significant Wealth Management business and the overall impact of Wealth Management earnings, which carry a higher P/E multiple than other business segments.

Recommendation

• We are increasing our 2007 earnings estimate to $4.50 per share from $4.00 per share and our 2008 earnings estimate to $5.00 per share from $4.40 per share due to high revenue growth and favourable operating leverage especially in wealth management. We are increasing our 12-month share price target to $75, representing 16.7x our 2007 earnings estimate or 15.0x our 2008 earnings estimate.

• We maintain our 1-Sector Outperform rating on the shares of Royal Bank based on strong earnings momentum, strength of franchise and operating platforms (particularly wealth management), superior profitability, and P/E valuation discount to the group.

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Bloomberg, Doug Alexander, 2 March 2007

Royal Bank of Canada, the country's biggest bank, said first-quarter profit rose to a record, topping analysts' estimates, led by mutual fund sales and investment-banking fees. The bank raised its dividend 15 percent, the most in at least a decade.

Net income for the period ended Jan. 31 increased 28 percent to C$1.49 billion ($1.27 billion), or C$1.14 a share, from C$1.17 billion, or 89 cents, the Toronto-based bank said today in a statement. Revenue rose 15 percent to C$5.7 billion, the biggest increase in at least two years.

Royal Bank's mutual fund revenue soared 36 percent to a record from the previous year, as industry sales rose to a decade high in January on higher stock prices. The bank also benefited from record mergers in Canada last year and increased sales of new stock and bonds.

``The results were tremendous,'' said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc., which manages C$4.5 billion in Toronto, including Royal Bank stock. ``I don't think there's any doubt that they're the leaders in Canada in terms of banking.''

Shares of Royal Bank rose 98 cents, or 1.8 percent, to C$54.86 at 4:10 p.m. on the Toronto Stock Exchange, the biggest gain in four months.

Chief Executive Officer Gordon Nixon said he's looking to the U.S. and Europe to grow, after he resumed expansion of the bank's RBC Centura U.S. consumer banking unit with the $434 million acquisition of Flag Financial Corp. in December. Royal Bank also agreed to buy 39 branches in Alabama from AmSouth Bancorporation in November.

``We're going to continue more of the same, building Centura, continue to make smaller acquisitions,'' Nixon told reporters today following the annual meeting in Toronto. ``If there is a change in the environment, you might see us be willing to be a little more active.''

Royal Bank said profit before some items was C$1.16 a share, topping the median estimate of 99 cents a share in Bloomberg survey of 10 analysts. National Bank Financial analyst Robert Wessel, who rates the stock ``sector perform,'' said profit was C$1.13 a share on that basis, higher than his estimate of C$1.01 a share.

Royal Bank raised its quarterly dividend 15 percent to 46 cents a share, the biggest increase since at least 1996.

Consumer banking profit in Canada rose 31 percent to C$877 million, driven by credit cards and mutual funds. A 5.6 percent gain for the Canadian benchmark stock index during the quarter helped push fund sales to a decade high in January, according to the Investment Funds Institute of Canada. Mutual fund revenue was C$354 million in the quarter, after Royal and smaller rival Toronto-Dominion Bank took market share from money managers such as AIC Ltd.

RBC Capital Markets' profit rose 27 percent to C$420 million on stocks sales and mergers. The value of new equity sold by Royal Bank more than doubled to $1.97 billion, and the value of government debt issues rose 49 percent to C$2.94 billion from a year earlier, according to Bloomberg data. Net trading revenue soared 40 percent to C$652 million.

``Trading revenue continues to produce strong results, but the sustainability of this volatile stream will be questioned,'' Mario Mendonca, an analyst at Genuity Capital Markets, said today in a note to clients.

The bank advised on nine mergers worth $18.9 billion in the period, including Cia Vale do Rio Doce's $16.7 billion takeover of Inco Ltd., according to data compiled by Bloomberg. A year earlier, the investment bank closed nine deals worth $7.6 billion.

Royal Bank is ``not as reliant on financial markets as the other banks,'' said Stephen Gauthier, who oversees $17 million including Royal Bank shares as partner in Montreal-based investment firm Gauthier & Cie. ``For others it will be tougher, if equity markets don't rise as much as they've done in the past few years.''

Royal Bank's investment banking unit has been hiring and buying companies to expand in the U.S., U.K. and Asia. The bank acquired Denver-based investment advisers Daniels & Associates LP and New York-based Carlin Financial Group's brokerage unit last year.

Profit from U.S. and international consumer banking, which includes Raleigh, North Carolina-based RBC Centura, rose 48 percent to C$149 million, led by asset management. Canadian insurers also benefited from rising fund sales in the U.S., with Sun Life Financial Inc. posting a 58 percent increase in asset management earnings.

Royal Bank set aside C$162 million for bad loans, more than triple the C$47 million it set aside a year ago.

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Dow Jones Newswires, Monica Gutschi, 2 March 2007

Royal Bank of Canada showed once again that it's "best in class" among Canada's domestic banks, easily outpacing analyst forecasts in the first quarter and boosting its dividend. All of its business segments did well, led by trading and insurance.

The country's largest lender earned C$1.49 billion or C$1.14 a share in its latest quarter, up from C$1.17 billion or 89 Canadian cents a year earlier.

On a cash basis, first quarter earnings were C$1.16 a share, solidly above the Thomson First Call mean estimate of 99 Canadian cents a share.

Return on equity was 27.3% versus 23.9%.

"Royal remains a best in class franchise in most of its business segments, and this showed through both the retail and wholesale businesses," BMO Capital Markets analyst Ian de Verteuil said in a note, while UBS said the quarterly result "confirms solid momentum continues across most of (the bank's) key businesses."

Moreover, UBS said, Royal Bank has one of the better outlooks among Canadian banks in a year where the economy is expected to slow. Analyst Jason Bilodeau also said Royal Bank's premium valuation over its peers - which has narrowed in recent weeks - "is likely to return on back of the best numbers we have seen from this group."

Both BMO and UBS have an investment-banking relationship with Royal Bank and both make a market in its securities.

As expected, the bank announced a 15% increase in its quarterly dividend to 46 Canadian cents from 40 Canadian cents.

Royal Bank also announced plans to redeem all C$500 million (US$426 million) of its outstanding 6.75% subordinated debentures due June 4, 2012 for 100% of the principal amount plus accrued interest. The redemption will occur on June 4.

On a conference call to discuss the results, Chief Executive Gordon Nixon said he was "very pleased" with the performance of all business units, but said there was still "lots to be done."

He said the extremely strong return on equity was due to how the bank was expanding its business lines effectively and at a faster rate than its peers.

"It's a function of mix, where our business is growing, and a very good environment generally for financial services," Nixon said.

The bank's loan loss provisions jumped to C$162 million from C$47 million, primarily due to a C$50 million reversal of the general allowance in the year-earlier period and lower corporate recoveries this quarter.

Royal Bank said total revenue was up 15% to C$5.70 billion in the latest quarter as a result of solid growth in its wealth management and banking businesses.

The bank's Canadian Personal and Business net income increased C$208 million, or 31%, from a year ago with strong growth evident across all business lines. In particular, its insurance operations did well, especially since the bank had to take a charge last year related to Hurricane Katrina.

The U.S. and International Personal and Business net income increased C$48 million, or 48%, from a year ago, boosted by RBC Centura's acquisition Flag Financial Corporation (Flag).

And RBC Capital Markets net income increased C$90 million, or 27%, from a year ago.

About 14 Canadian cents of the bank's outperformance over analyst forecasts has to do with trading and insurance, BMO noted.

Royal Bank had a "monster quarter" in trading, de Verteuil said, with 20% higher trading revenue than three of its smaller peers combined. He suggested that accounted for 7 Canadian cents in additional earnings.

As well, the insurance business added another 7 Canadian cents more than forecast, due to business growth and some one-time items, de Verteuil said.

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Moody's Raises Banks' Bond Ratings

Bloomberg, Steven Bodzin and Joseph N. DiStefano, 2 March 2007

Moody's Investors Service gave its highest bond ratings to the long-term deposit and senior unsecured debt of the Royal Bank of Canada and Toronto-Dominion Bank, saying the government will back big banks if they're facing default.

The Toronto-based banks were rated Aaa by New York-based Moody's in a statement issued today. Bank of Nova Scotia, Bank of Montreal, National Bank of Canada, Canadian Imperial Bank of Commerce and Caisse Centrale Desjardins du Quebec were upgraded to Aa1. A higher credit rating can lower a company's cost of raising money by signaling lenders and investors that they face less risk.

Moody's announced new guidelines for bank credit ratings last month that consider financial strength along with any support the company may get from government and financial institutions if it gets into serious trouble. Such backing might be offered if regulators concluded the effects of a failure would be catastrophic for the nation's economy, a concept rooted in the biggest banks' financial woes in the 1980s.

``In Moody's opinion, the probability that the Canadian sovereign would support any of the six large Canadian banks in a period of extreme financial distress is 95%,'' Moody's said in the statement. The rating agency referred to six banks because Montreal-based Caisse Centrale is a cooperative.

Before the upgrades, those categories of debt at Royal Bank were rated Aa2. Toronto-Dominion, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and Caisse Centrale were Aa3. National Bank's debt was rated A1.

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Bloomberg, Joseph N. DiStefano and Steven Bodzin

JPMorgan Chase & Co., Bank of New York Co. and State Street Bank & Trust Co. gained higher credit ratings from Moody's Investors Service Inc., which said the U.S. government would back the banks if they faced default.

Moody's left New York-based Citigroup Inc. and San Francisco-based Wells Fargo & Co. unchanged because their financial strength ratings -- an element of their overall ratings -- already were at the top of the scale, the New York- based service said in a statement yesterday. Moody's raised Bank of America Corp.'s rating for reasons unrelated to federal aid.

Moody's announced new guidelines for bank credit ratings last month that consider financial strength along with any support companies may get from government and financial institutions if they get into serious trouble. Such backing might be offered if regulators conclude the effects of a failure would be catastrophic for the nation's economy, a concept rooted in banks' financial woes in the 1980s.

The changes affected ``only a few banks'' in the U.S. because the nation is a ``low'' support country, Moody's said. Each of Canada's six biggest banks, including Toronto-based Royal Bank of Canada, gained higher ratings earlier yesterday because of the new criteria.

``People already feel like they're too big to fail,'' said Jonathan Hatcher, senior research analyst for corporate bonds at Delaware Investments, which holds $98 billion in corporate bonds.

Moody's gave JPMorgan, of New York, and State Street, of Boston, ratings of Aa2, a level higher than their prior Aa3. Bank of New York rose two notches to the highest rating, Aaa, from Aa2. A higher credit rating can lower a company's cost of raising money by signaling to lenders and investors that they face less risk.

The ratings service gave JPMorgan a 98 percent chance of enjoying government support because of its work clearing government securities, its extensive derivative operations and its large deposit share. Moody's assigned Bank of New York a 95 percent chance because of government clearing work and State Street a 70 percent chance because it dominates U.S. mutual fund servicing. The service rated Citigroup at 98 percent and Wells Fargo at 70 percent.

Rival credit rating firms including Standard & Poor's haven't adopted Moody's new criteria. Royal Bank of Scotland Group Plc, Dresdner Kleinwort and Societe Generale SA objected to the new system last month because it ranked Iceland's three biggest banks as better credits than ABN Amro Bank NV and ING Bank NV, citing the Icelandic government's statements in support of its banks.

Moody's made the switch to make its ratings reflect reality, said Gary Bauer, Moody's managing director for banks in the Americas.

The new policy has the potential to produce ``really interesting'' upgrades in Japan, where government support helped banks stay solvent during the 1990s, Hatcher said.

New Moody's ratings for banks in Japan, China, Australia, and other Pacific countries are due March 23. Ratings scheduled for March 9 include banks in France, Italy, Israel and Latin America.

The company upgraded Bank of America to A from A- for financial strength, lifting its deposit and senior debt ratings to Aaa. The agency said that while the government was 95 percent likely to help the bank stay solvent, its financial position gave it the highest rating without considering government aid.

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BMO Q1 2007 Earnings

TD Newcrest, 2 March 2007

Event

BMO reported Q1/07 adjusted cash operating EPS of $1.32, ahead of our estimate of $1.30, consensus of $1.29, and $1.24 reported last quarter. Year over year, cash EPS rose 6.5%, the slowest of the group so far. Two of the three operating divisions fell short of our estimates, albeit we would regard the quarter as satisfactory.

Impact

Neutral. We are increasing our 2007 EPS estimate slightly to $5.53 (from $5.50) but maintaining our 2008 EPS estimate at $5.85. Also, we are maintaining our 12-month target price of $73.00 and Hold rating on the stock

Details

P&C Domestic results were slightly above our expectations driven by stable net interest margins, strong asset growth, and good expense management. Importantly, the bank managed to curtail market share losses in certain important product categories. However we believe that BMO remains particularly challenged in domestic banking (as reflected by the charge taken in the quarter) and that revenue challenges still exist. We view BMO’s solid results as a product of the strong retail banking environment rather than an indication that issues within the organization have been resolved.

P&C U.S. results were up 21% from Q4/06 but down 14% from Q1/06. The division benefited from growth in personal and commercial loans, but compressed net interest margins and a slowing Midwest economy negatively affected profitability. We remind that Harris Bank represents only about 5% of BMO’s consolidated earnings, but we are disappointed that various projects completed last year are not positively impacting results.

Private Client earnings were slightly below expectations but still solid. Net income was $96 million, up 13% from Q4/06 due to increasing market driven revenue growth. The benefits of this growth were partially offset by higher expenses related to continued investment in the bank’s sales force and U.S. investment management business. Earnings performance from this division fell far short of the growth generated by peers.

Investment banking results were below our expectations, driven by softer than expected trading income related to lower commodity derivatives trading revenues. Exhibit 1 shows that BMO’s trading volatility has been quite high. As well, the bank grew corporate banking assets at a rapid clip in quarter, with average loans and acceptances increasing $5.7 billion or 35% year over year. While BMO mgmt quickly promotes its solid credit history, we worry it is becoming amongst the most aggressive trading banks, and is also now quickly growing its corporate lending book as the US economy slows. These trends seem somewhat out of character.

Credit performance still excellent. The PCL rate was 0.10%, and GIL’s were $748 million, inline with the year ago period. Formations were $113 million, up from $78 million a year ago.

Tier 1 capital was consistent at 9.9% at January 31, 2007, down from 10.2% last quarter mostly due to a surge in risk weighted assets. The bank announced a $0.03 dividend increase to $0.68. BMO offers investors the highest dividend yield of the group, likely providing the stock a firm floor price.

Justification of Target Price

Our $73.00 target price is a product of adding 90% of our fundamental target price to 10% of our acquisition value. Our fundamental target price of $73.30 is calculated by adding 50% of the $74.67 value derived from our 2007 P/E valuation of 13.5 times, to 50% of the $69.04 value derived from our 2007 price-to-book valuation of 2.56 times. Our acquisition model derives a BMO acquisition value of $86.29.

Key Risks to Target Price

We believe that the four key valuation risks specific to BMO that may prevent the stock from attaining our target price are: 1) unfavourable interest rate changes; 2) the competitive environment in the United States constraining Harris Bank’s profitability; 3) the bank making a larger than expected U.S. acquisition at premium valuation multiples; 4) a deterioration in the credit environment.

Investment Conclusion

This was a solid quarter for BMO, but we feel that on a relative basis, they are the weakest of the Canadian banks that have thus far reported Q1/07. We continue to believe that other banks in the space provide much stronger growth potential/fundamentals than BMO. That said, we believe BMO shares should be supported by investor demand for safety and yield in 2007. It remains Hold rated with a $73.00 target price.

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Financial Post, Duncan Mavin, 2 March 2007

Measures to slash 1,000 jobs at Bank of Montreal are needed to foster growth and avoid "inertia and decline" at the bank, said BMO's new chief executive yesterday.

"[The restructuring] will not only take costs out of the business but it will make the business more efficient," said incoming CEO Bill Downe, who formally took over the reins from Tony Comper at the bank's annual meeting in Toronto.

BMO first announced the restructuring charges last month. The measures cost $135-million in the first quarter of 2007, including $117-million of severance costs

BMO's profits for the first quarter fell 3.4% to $585-million compared with $606-million a year ago.

Excluding the one-off charge, profit rose 11%.

Mr. Downe said the measures will enable the bank to better focus on customer service.

BMO made a strong push for a bigger share of the Canadian retail banking market last year, but it was largely deemed to have failed to make much impact.

"Although the Canadian consumer lending environment has enjoyed solid performance recently, BMO has benefited from a smaller piece of this pie [than its rivals,]" said Madhavi Mantha, a banking analyst with research firm Celent LLC.

Management is trying to improve its retail banking offering, said UBS Investment Research analyst Jason Bilodeau.

But, Mr. Bilodeau said, "we need comfort that a positive inflection point in domestic [retail banking] is on the horizon."

Mr. Downe said the bank will make renewed attempts to improve its retail banking performance under his stewardship.

"We think we can raise the bar on customer service," said Mr. Downe, who said he personally spent some time last week in focus groups discussing BMO's retail bank.

The new chief executive revealed that BMO will renovate 30 locations in 2007, and open 15 new branches. The number of BMO mortgage specialists will be increased by 20% this year.

Chief financial officer Karen Maidment said BMO has already begun making the job cuts and expects all the layoffs to come in 2007. The cuts are not expected to affect customer facing staff.

BMO is not disclosing what cost savings it expects to flow through to its bottom line, said Ms. Maidment.

Overall, the bank delivered cash earnings of $1.32 per share, excluding the restructuring charge, compared to an average of analysts' estimates before results were announced of $1.30 per share.

BMO's Canadian retail banking group turned in first-quarter profit that was up $30-million, or 12%, from last year at $292-million. The bank's U.S. retail banking franchise delivered earnings of $29-million, down 14% from the same quarter in 2006. BMO earned $219- million from investment banking, 2% less than in the first quarter last year.

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The Globe and Mail, Andrew Willis, 1 March 2007

Bank of Montreal has been losing retail customers to rivals for several years. On Thursday, newly appointed chief executive officer, William Downe, used his first annual meeting to make a tough-love pitch on how to stop the bleeding.

As the new boss graciously took the baton from Tony Comper, CEO for the past seven years, the 54-year-old Mr. Downe pledged that BMO branches will win a larger share of the lucrative retail market.

His call to arms, coming on the heels of 1,000 back office job cuts announced in January, is part of a broader push to build a bigger and more profitable bank.

The simple message from Mr. Downe, who recently spent four hours behind one-way glass listening to branch customers complain, is that BMO must offer better service. “The real key to growth is to provide our customers with a better experience once they walk through our doors,” he said in Toronto.

The front lines of the retail banking wars are in cities such as Kamloops, B.C., where BMO will open a new $2.6-million branch next Thursday that sums up its strategy for winning the hearts and wallets of clients.

The 50-employee branch will feature traditional tellers working shoulder-to-shoulder with small-business bankers, mortgage specialists, stockbrokers and BMO private bankers who typically cater to clients with $1-million-plus portfolios. There will be a drive-through window, and the branch's regular business hours will be extended, with doors also open Saturdays from 10 a.m. to 4 p.m.

In the past year, BMO replaced most of its 1,936 ATMs, and put new signs on many of its 963 domestic branches, featuring the name of both the bank and its wealth management arm, BMO Nesbitt Burns Inc.

The bank plans to open 15 new branches this year, and renovate 30 locations. In an internal talk last month, Mr. Downe told colleagues that banking “is a lot like hockey. You have to hit the competition before they hit you.”

While BMO's Canadian retail division posted a profit of $292-million for its fiscal first quarter ended Jan. 31, up $30-million from the comparable quarter last year, the bank continued to lose market share in areas such as personal deposits, a sector targeted by rivals such as Bank of Nova Scotia.

Over all, BMO reported a profit of $585-million in the quarter, including a $135-million restructuring charge that reflects severance costs, down 4 per cent from the same period a year earlier.

“The quarter suggests that efforts to turn the fortunes of the domestic business are still ongoing. The trends are mixed, not getting materially worse, and management is moving to address the issue,” said UBS Securities Canada Inc. analyst Jason Bilodeau.

Shareholders were quick to offer their input on services that could be fixed. One discount brokerage client, a woman of a certain age, asked the CEO if he could do something about the music when she is put on hold, as “it's all that awful teenage wailing about their lovers.” Mr. Downe promised to both change the music and cut down the wait times.

Retail expansion does not extend to the U.S. market, where BMO forecasts an economic slowdown in the second half of this year. Mr. Downe said the bank will open fewer branches than planned in the Chicago area, where it has 234 outlets, due to weakness in the real estate market that is expected to spill over into other sectors.

Mr. Comper retired Thursday from a bank he joined in the summer of 1967, “a young man with an English degree and a guitar.” During his watch as CEO, annual profit doubled to $2.66-billion, and the bank also had to bounce back from a failed 1998 merger with Royal Bank of Canada. Looking back at the 1999 restructuring of BMO, in his first year at the helm, Mr. Comper said: “I think of the post-non-merger crisis as my finest hour professionally.”

Mr. Comper leaves the bank with $78-million in shares and stock options, and a pension that the banks calculates is worth $26.8-million.

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Bloomberg, Doug Alexander, 1 March 2007

Bank of Montreal, Canada's fourth-largest bank, said profit fell for the first time in six quarters after it cut 1,000 jobs to lower costs.

Net income for the period ended Jan. 31 fell 3.5 percent to C$585 million ($499 million), or C$1.13 a share, from C$606 million, or C$1.17 a share, a year earlier, the Toronto-based bank said today in a Canada NewsWire statement. Revenue rose 4.1 percent to C$2.61 billion.

William Downe, who takes over today as chief executive officer, is reducing costs to counter a slump in mortgages and consumer lending. Bank of Montreal had an C$88 million cost in the quarter to cut 1,000 head office and administrative jobs, equal to 3 percent of the workforce.

``The single most important area the bank needs to address to rebuild market credibility is in the domestic personal and commercial business,'' Genuity Capital Markets analyst Mario Mendonca wrote in a research note.

Bank of Montreal shares fell 65 cents to C$70.11 in 4:10 p.m. trading the Toronto Stock Exchange, and have risen 1.6 percent this year.

Bank of Montreal said in November that market share for Canadian personal banking slipped to 12.85 percent last fiscal year from 13.04 percent, after it stopped discounting mortgages to win market share from bigger rivals.

The bank forecast profit growth will slow to between 5 percent and 10 percent this year, from 12 percent in fiscal 2006. The job cuts are the biggest for a Canadian bank since Royal Bank of Canada, the largest lender, cut 1,660 jobs in 2004.

Bank of Montreal raised its quarterly dividend 4.6 percent to 68 cents a share, the second increase in as many quarters.

Investment banking profit fell 2 percent to C$219 million during the quarter. Profit from its private client group, which includes brokerage, investing services and mutual funds, rose 4 percent to C$95 million. Mutual fund sales at the bank fell 6.4 percent to C$645 million in the quarter from C$689 million a year earlier, according to preliminary figures from the Investment Funds Institute of Canada.

Canadian consumer banking profit rose 12 percent to C$292 million and profit from its Chicago-based Harris Bank unit fell 14 percent to C$29 million.

National Bank Financial analyst Robert Wessel, who rates the stock ``sector perform'', said profit was C$1.32 a share excluding one-time items, compared with his estimate of C$1.33 a share on that basis. That matched the C$1.32-a-share median estimate of 10 analysts polled by Bloomberg News.

The bank plans to reduce expenses as a percentage of revenue this year after missing its target in 2006. Non-interest expenses rose to C$6.35 billion last year from C$6.33 billion a year earlier as the bank spent more money on branches.

This was the last earnings report for Anthony Comper, who announced in November he would step down after more than eight years as CEO. Comper, 61, will stay on as an adviser until April 24, when he retires.

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CIBC Q1 2007 Earnings

TD Newcrest, 2 March 2007

Event

CIBC reported operating EPS of $2.18 ahead of our estimate of $1.91 and consensus of $1.94, up from $1.96 in Q4/06 and $1.63 in Q1/06. Bottom line growth was driven by stronger than expected contribution from the World market’s operation, solid expense management, and revenue strength from the wealth division. We believe the operating earnings number was closer to $2.05.

Impact

Positive. We are increasing our 2007 EPS estimate to $7.75 (from $7.55), and our 2008 EPS estimate to $8.50 (from $8.25) largely to reflect lower credit losses, continued expense reductions and the likelihood of continued high security gains. As a result, we are increasing our 12-month target price to $106.00 (from $100.00), but are maintaining our Hold recommendation on the stock.

Details

Retail Markets reported operating net income of $530 million, beating our estimate of $514 million, as the bank reported much improved year over year credit losses and expense efficiency, and revenue strength from the wealth management businesses. Market share losses in domestic banking persist, negatively impacting our relative target valuation multiples.

World Markets results were impressive, but unsustainable in our opinion. Earnings were driven by strong business growth, but also by what we view as unsustainably high credit recoveries and investment security gains. While the pool of merchant banking and investment securities unrealized gains is growing, we do not assign high valuation multiples to this stream of earnings. We highlight that once tax and operating expense affected, securities gains likely represented 10%+ of this quarter’s earnings.

Tier 1 capital was a respectable 9.6% following the closing of the First Caribbean deal. Management expected the Tier 1 ratio to fall to between 8.5% and 9.0%. As a result the bank raised it dividend $0.07 to $0.77. We expect the bank to now focus on returning capital back to shareholders at the rate that others in the group have been doing.

Justification of Target Price

Our fundamental target price of $106 is calculated by adding 50% of the $105.72 value derived from our 2007 P/E valuation of 13.5 times, to 50% of the $106.70 value derived from our 2007 price-to book valuation of 3.23 times. We no longer include a probability of acquisition in our CM target price.

Key Risks to Target Price

We believe the key risks are: 1) unfavorable interest rate changes; 2) persistent credit losses within the retail group; 3) volatility of beta sensitive earnings; and 4) further domestic banking market share losses.

Investment Conclusion

Overall, CIBC reported a very good Q1/07. Positives during the quarter included excellent results from beta sensitive businesses, good expense control, lower yoy credit losses and a rise in the quarterly dividend. That said, we view the earnings stream emanating from CM to not be of the quality of our favorite Canadian bank stocks, and harbor concerns regarding the bank’s ability to grow domestic banking revenues. We reiterate our Hold recommendation on the stock.

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The Globe and Mail, David Ebner & Sinclair Stewart, 1 March 2007

Canadian Imperial Bank of Commerce hosted a quiet annual general meeting in Calgary Thursday, a reversal of a year earlier when the bank's leadership faced critical queries about the billions spent on a legal settlement over Enron Corp.

“When we look back at 2006, we see it as a year of progress,” Gerry McCaughey, chief executive officer of CIBC, told a largely empty conference room in downtown Calgary. “Our focus in 2007 is to build on that progress.”

Last year's meeting was in Quebec City, where the company was blasted for the $2.4-billion (U.S.) it spent on its Enron settlement, leading to a rare annual loss for 2005. A shareholder activist challenged bank chairman Bill Etherington to name the people at CIBC that were responsible for Enron, a request that was denied.

On Thursday, only a few questions were asked, including one about the number of Aeroplan miles on a credit card promotion. In 2006, CIBC recorded a record profit of $2.6-billion (Canadian) or $7.43 a share.

Quiet was the theme of the day for CIBC, as strong day-to-day retail operations — the least flashy segment in the banking business — helped produce a strong first-quarter profit of $770-million or $2.11 a share for the three months ended Jan. 31. Profit was up by a third from $580-million or $1.62 a year earlier.

Mr. McCaughey, himself noted for being reserved, even for a banker, was also quiet on bank fees. Industry executives are expected to meet next week with federal Finance Minister Jim Flaherty, who wants to see fees for withdrawals from bank machines cut.

Asked three times about fees by reporters, Mr. McCaughey ignored the questions, saying CIBC's main goal is that its own machines — about 3,800 — are widely available to the bank's clients.

Customers that withdraw funds from their bank's own machines generally pay no fee. The issue Ottawa is pushing are fees of $1.50 and more that banks charge the customers of competitors to withdraw cash.

“Our priority is access,” Mr. McCaughey said, adding that CIBC spent more than $100-million improving its bank machines last year.

“The vast majority of our clients have the ability to access our very large network and pay very little,” he said.

CIBC increased its quarterly dividend to 77 cents, up 7 cents or 10 per cent. The company said it is looking to raise dividends further in the short term, rather than consider splitting its stock, which closed yesterday at $100.52 on the Toronto Stock Exchange, down 14 cents.

Stock of CIBC is up about 26 per cent in the past year, the best among the big banks, and almost double the No. 2 result of 13 per cent posted by Royal Bank of Canada over the past 12 months.

Under Mr. McCaughey, CIBC has attempted to dampen the volatility at its retail bank, largely by shifting assets away from risky unsecured lending products. The bank has acknowledged that this could affect revenue growth but insisted it would prefer to focus on secured lending, where there is less risk — particularly when the credit cycle finally turns.

The bank has always had high loan-loss provisions in its retail bank, relative to its peers, but these are starting to fall in line with the asset shift. In the first quarter, CIBC set aside $153-million for soured loans, compared with $180-million a year ago.

The efficiency rating of the retail bank — which tracks how much it costs the bank to earn a dollar of revenue — has also been coming down, thanks to a heavy focus on expense savings over the past year.

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Bloomberg, Doug Alexander, 1 March 2007

Canadian Imperial Bank of Commerce, the country's fifth-largest lender, said first-quarter profit rose 33 percent, beating analysts' estimates, on higher fees from investing banking and mutual funds.

Net income for the period ended Jan. 31 was C$770 million ($657.3 million), or C$2.11 a share, compared with C$580 million, or C$1.62, a year earlier, the Toronto-based bank said today in a Canada NewsWire statement.

CIBC ranked first for mergers and second for new stock sales among Canadian banks in the quarter, according to data compiled by Bloomberg. The transactions included Xstrata Plc's $18 billion takeover of Falconbridge Ltd. and a $197 million stock sale by Calloway Real Estate Investment Trust.

``Their involvement in underwritings was quite strong in the quarter,'' Blackmont Capital analyst Brad Smith said in an interview before earnings. CIBC ``certainly got more than its fair share.''

CIBC raised its quarterly dividend by 7 cents to 77 cents a share, its second increase in a year.

Shares of Canadian Imperial fell 14 cents to C$100.52 at 4:10 p.m. trading on the Toronto Stock Exchange.

National Bank Financial analyst Robert Wessel, who rates the stock ``outperform'', said profit was C$2.18 a share excluding one-time items, higher than his estimate of C$1.88 a share on that basis. The median estimate of 10 analysts polled by Bloomberg News was C$1.96 a share.

Overall revenue rose 8.4 percent to C$3.09 billion, from C$2.85 billion a year earlier, CIBC said.

Investment banking profit rose 64 percent to C$210 million in the quarter, driven by trading revenue, underwriting and mergers. CIBC had C$132 million in securities gains in the quarter.

CIBC World Markets advised on 17 deals worth $34.5 billion that closed in the quarter, more than 10 times the year-earlier amount, according to Bloomberg data. CIBC led 18 equity transactions worth $1.8 billion, a 61 percent increase from a year earlier. Canadian mergers soared to a record in 2006, with 2,300 announced deals worth $290.5 billion, according to Bloomberg data.

Consumer banking profit rose 21 percent to C$530 million from C$438 million a year ago, driven by higher revenue from credit cards, personal banking and contributions from its FirstCaribbean International Bank.

CIBC spent $989 million to acquire a 44 percent stake in FirstCaribbean in December from Barclays Plc. The acquisition gives CIBC control of a regional bank that has 100 offices in 17 Caribbean countries. The bank set aside C$143 million for soured loans, compared with C$166 million a year ago.

Chief Executive Officer Gerald McCaughey told investors at the annual meeting in Calgary that the bank isn't considering a stock split this quarter, even with the share trading higher than C$100.

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National Bank Q1 2007 Earnings

TD Newcrest, 2 March 2007

Event

NA reported EPS of $1.43, beating our estimate of $1.37 and consensus of $1.33, up from $1.31 in Q4/06 and $1.26 in Q1/06. Strong results were recorded in higher valuation multiple retail and wealth management businesses.

Impact

Positive. We are maintaining our BUY recommendation, and increasing our target price to $73.00 from $71.00. Our 2007 and 2008 EPS estimates both increase $0.10, to $5.70 and $6.10 respectively.

Details

Retail results were strong, with net income of $123 million (Exhibit 1 provides more detailed financial highlights), increasing 16% year over year reflecting:

• Asset growth of 5%.
• Margin improvement, up 3 bps to 2.90%.
• Efficiency improvements, with the efficiency ratio declining to 57.6% (from 62.3% in Q1/06). Management indicated that not all efficiency improvements were sustainable (we estimate approximately 117 bps), which we have incorporated in our earnings forecasts.
• Offset partially by slightly higher credit costs ($43 million); not cause for concern in our view.

Wealth management results were impressive. Net income was $45 million, up 22% from Q1/06, with particular strength in retail brokerage and mutual fund businesses. Expenses were controlled, with the efficiency ratio improving to 69.6% (from 71.8% a year ago). AUM/AUA growth was solid, up 3% year over year.

Financial Market earnings were robust with net income of $87 million, up 13% sequentially, and down slightly (4%) year over year.

Revenues were strong, driven by trading revenues and other sources. In our view, trading revenues of $112 million are relatively sustainable (and in line with average levels). In addition, investment gains were low at $29 million during the quarter, versus $36 million sequentially and $42 million in Q1/06, further adding to the quality of results.

Credit was controlled. The PCL rate was 0.22%, and GIL’s were $239 million, up slightly from $234 million at October 31, 2006. Formations were $234 million, down from $259 million a year ago.

Tier 1 capital was consistent at 9.9%. Capital management clearly distinguishes NA from the group. Management has been particularly aggressive at returning capital to shareholders (approximately 75% including both share buy backs and dividends per our calculation), which we expect to continue.

Justification of Target Price

Our $73.00 NA target price is a product of adding 50% of the $71.51 value derived from our 2007 P/E valuation of 13.4 times to 50% of the $72.49 value derived from our 2007 price-to-book valuation of 2.85 times.

Key Risks to Target Price

We believe that the four key valuation risks specific to NA that may prevent the stock from attaining our target price are: a) Unfavorable interest rate movements; b) Quebec sovereignty (we view this with a low probability); c) Lack of scale and financial flexibility; and d) Irrational pricing behavior from non-public competitor Desjardins.

Investment Conclusion

In summary, a flying start to the year fuelled by strength in retail and wealth management businesses. We continue to believe NA is a bargain at current levels, trading at a 1.6 times multiple discount to the group. In our view, political risk is shrinking in Quebec with latest opinion polls suggesting the Liberals have a clear lead in the run-up to the March 26th provincial elections. In addition, the bank has an excellent track record of returning capital to shareholders (including buy backs and dividends), has a steady wholesale business, and a dominant retail franchise in Quebec. We reiterate our BUY recommendation and increase our target price to $73.00 from $71.00.

Finally, Q1/07 was Real Raymond’s last quarter as Chairman and CEO, and we would like to congratulate him on yet another excellent quarter. Over the time he has been in charge of the bank, he has transformed it, and we believe Louis Vachon has inherited a strong franchise.

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Canadian Press, 1 March 2007

National Bank of Canada chief executive officer Real Raymond is winding up his 37-year career with Canada's sixth-largest chartered bank by posting the best quarterly results in its history.

It reported a record first-quarter profit of $240-million, up 11 per cent from a year earlier as revenue surpassed $1-billion for the second consecutive quarter.

For the quarter ended Jan. 31, diluted earnings per share rose to $1.43 from $1.26, the Montreal-based company said Thursday.

Analysts' consensus forecast was for earnings of $1.34 a share, before one-time items, according to Thomson Financial.

“Obviously I'm very pleased with the bank's first-quarter results which highlight the best-ever quarter in net income and certainly one of the best in terms of quality of earnings,” Mr. Raymond said in his final conference call before retiring on June 1.

Mr. Raymond, who will turn 57 before he retires, will become a part-time special adviser to the bank for a year after he vacates his post.

“It is rather nice for me to conclude my mandate as a CEO on such good results.”

He said all sectors contributed to the results, underlining the performance of the personal and commercial, and wealth management segments.

Robust growth in activities aimed at individuals and small and medium-sized businesses, along with cost controls were responsible for the improved position, the bank said.

Analysts credited Mr. Raymond for being the architect of “solid, high-quality numbers.”

“He's changed the entire culture of that bank,” said an analyst who didn't want to be named.

“It's a very, very, very well-run bank that shouldn't be trading at the kind of discount that it does to the other five Canadian banks.”

Louis Vachon, the chief operating officer who will take over as CEO from Mr. Raymond, said the bank is constantly facing the challenge of lower value.

Mr. Vachon told analysts it will be the summer or fall before he will give an indication of any strategic changes he hopes to pursue.

But Mr. Raymond said the National Bank has benefited from following a diversified and balanced strategy.

“With its dominant position in Quebec, National Bank is well-positioned to leverage on its privileged relationships with its customers,” he said, noting that the province's economy is healthy with good manufacturing output and employment.

Canada's bank CEOs will meet next week with Finance Minister Jim Flaherty to discuss bank service charges.

Mr. Raymond suggested lower fees could have an impact on the bank's profits even though he said they represent a small fraction of its $4-billion annual revenue.

“That being said, it's a very important component of our business and growth in the future so we're going to really have a good discussion with the minister on this issue.”

For competitive reasons, National Bank CFO Pierre Fitzgibbon declined to disclose fee revenue, but said the bank would likely try to make up any shortfall elsewhere.

“There's no doubt that if we would lose something we would try to make it up somewhere else, there's no doubt,” he said in an interview.

Since most of the automated machines in Canada are not controlled by banks, Mr. Fitzgibbon said any federal policy should apply fairly to all operators.

The bank's largest quarterly gains came in the wealth management segment, where net income grew 22 per cent to $45-million. Revenue increased 9 per cent, primarily because of vigorous retail brokerage activities.

Personal and commercial net income increased by 16 per cent to $123-million due to business growth and productivity improvements.

Financial markets net income was 4 per cent lower than in 2006 despite a 9-per-cent revenue increase on the strength of trading activities.

Return on common shareholders' equity rose to 20.7 per cent from 19.9 per cent.

The bank had $235.4-billion of assets under administration or management, up from $227.8-billion in 2005.

At its recent board meeting, the bank declared a 54-cent dividend per common share. That's up 13 per cent from last year.

The bank bought back 717,000 shares last quarter at an average price of $63.82 for $46-million. It plans to repurchase up to 8.1 million or 5 per cent of its outstanding shares this year.

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Bloomberg, Sean B. Pasternak, 1 March 2007

National Bank of Canada, the country's sixth-largest bank, posted an 11 percent jump in profit that topped analysts' estimates after collecting higher fees from consumer lending and mutual funds.

Net income for the first quarter ended Jan. 31 climbed to C$240 million ($204.7 million), or C$1.43 a share, from C$217 million, or C$1.26, a year earlier, the Montreal-based bank said today in a statement. The increase is the biggest in six quarters. Revenue rose 6.2 percent to C$1.05 billion.

The bank joins Toronto-Dominion Bank in recording bigger profits from consumer banking, as revenue from credit cards and loans increased. National Bank, which got more than half its profit from consumer banking, has agreements with financial- services companies including Power Financial Corp. to offer their clients cards and checking accounts.

``The bank should benefit from growth in consumer credit across Canada through its partnership program,'' TD Newcrest analyst Steve Cawley wrote yesterday in a note to investors.

Earnings from wealth management climbed 22 percent to C$45 million during the quarter because of higher fees from mutual funds and investment advice. The bank had C$143 million in net mutual fund sales during the quarter, compared with C$180 million in withdrawals during the year-earlier period, according to CIBC World Markets data.

A 5.6 percent gain for the Canadian benchmark stock index during the quarter helped push fund sales to a decade high in January, according to the Investment Funds Institute of Canada. The combined mutual fund assets for the Canadian banks rose 16 percent from a year earlier, according to analyst Kevin Choquette at Scotia Capital in Toronto.

National Bank's profit, which was a record, exceeded the C$1.33 a share average quarterly estimate of analysts surveyed by Bloomberg.

Consumer-banking profit increased 16 percent to C$123 million because of rising loans and deposits. Profit at the financial markets unit, which includes trading and investment banking, dropped 4.4 percent to C$87 million due to a ``significant'' decrease in gains on securities, the bank said without elaborating.

Shares of National Bank fell 59 cents to C$64.71 at 4:15 p.m. in trading on the Toronto Stock Exchange.

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Ottawa to Include Banks' Electronic Payment System in Probe

Financial Post, Paul Vieira, 2 March 2007

House of Commons finance committee voted yesterday to extend its probe of the banking industry to include the electronic payment system, a move one committee member said could make the ATM fee debate look like "chump change."

At issue is the two or three days it takes for a payment, done through Internet banking, to kick-in. MPs want to know why, with today's technology, that payment can't take effect immediately. They note that charges on a credit card kick in almost instantaneously.

"I don't understand why electronic payments are instant, in real time," said Liberal MP John McKay, who pushed for such a review.

"It appears to be instant. It is certainly instant when it is removed from the account. It is not so instant in terms of paying the bill."

The issue has caught the attention of the Finance Minister, Jim Flaherty.

In an appearance before the committee last month, Mr. Flaherty told Mr. McKay he would speak with the bank CEOs about the timing of electronic payments.

The commiteee is set to begin hearings on the ATM and payment issue in mid-March.

"It is worth an explanation," Mr. McKay added. "ATM fees are chump change compared to the money that goes effectively into my bank's holding account while all this processing goes on before my bill gets paid."

The examination of the payment system is the latest salvo legislators have launched against Canada's chartered banks. The banks are under heavy pressure, from Mr. Flaherty and other MPs, to reduce or eliminate the fees they charge consumers for withdrawing money from an ATM operated by another lender.

Laurence Booth, a finance professor at Toronto's Rotman School of Management, said studying the payment system could spark more public policy repercussions than the ATM probe.

"The payment system is a natural monopoly," he said. "It is clearly owned by the banks and controlled by the banks. And clearly there are public policy issues there."

The Canadian Payments Association sets the rules and standards that govern the clearing and settlement of bill payments, and counts as its members the banks. Under the current arrangement, payments go through a number of stages, starting at the consumer's bank to the billing company's financial institution, and finally to the biller's coffers. As a result, there is no integrated system.

The CPA, which oversees 21 million transactions a day, says a number of factors can slow down the payment process -- most notably the technology platforms at the respective banks and the billing company. To obtain near instantaneous online payments would require hundreds of millions of dollars invested in technology, said Roger Dowdall, a CPA spokesman.

The association operates under rules set out in law. But an Ottawa-based consumer rights group, Public Interest Advocacy Centre, said the system should be federally regulated, much like in the United States and the European Union. Moreover, the current regime, it claims, is a confusing patchwork of rules, with different regulations governing debit cards, credit cards and preauthorized bank withdrawals.

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Financial Post, Duncan Mavin, 2 March 2007

The possibility that a meeting between Canada's banks and Finance Minister Jim Flaherty next week that could see a prohibition on the banks' right to charge fees to users of automated banking machines has some on Bay Street scrambling.

But moves to stop the banks charging the fees would be even more damaging for owners of so-called white-label machines, says the head of a company that operates 20% of Canada's independent ABMs.

White-label ATMs are the non-bank owned cash dispensers often found in convenience stores, bars and elsewhere.

They sprang up in the aftermath of a government tribunal in 1996 that ordered the opening up of the ATM market to companies other than banks, and permitted banks and their competitors to charge a fee to ATM users.

The white-label machines now outnumber the bank-owned machines by about two to one.

If the banks are now no longer allowed to charge fees, it could spell disaster for the industry and reduce choice for consumers, said Mischa Weisz, chief executive of TNS Smart Network Inc., in a letter submitted to the chair of the House of Commons standing committee on finance.

To compete with the banks, white-label providers would be forced to lower their fees, too, and could be forced out of business, Ms. Weisz said.

The overall number of ATMs available to Canadians would fall, and there would be a loss of income for small businesses that benefit from having the machines on their premises, Ms. Weisz said.

Meanwhile, two bank CEOs who were speaking at their annual meetings yesterday remained tight-lipped about the ATM fee showdown scheduled for Monday.

Canadian Imperial Bank of Commerce CEO Gerry McCaughey refused to give a direct answer to reporters who asked what outcome he expects from Monday's meeting, though he said CIBC has invested $125-million in the last year on improving its network of 3,800 machines to gain a competitive edge.

Bill Downe, the new CEO of Bank of Montreal, said he is "sympathetic to customer issues," but offered no specific details ahead of the meeting. "I'd hate to tell the [Finance] Minister what I'm going to tell him before I tell him [in person,]" said Mr. Downe.

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Financial Post, Duncan Mavin, 2 March 2007

It is open season for bank-bashing yet again, with malcontents and politicians of every hue lining up to take potshots at the giants from Bay Street.

Currently, ATM fees are in the critics' crosshairs -- Finance minister Jim Flaherty will meet with the banks on Monday for an explanation of the fees. Last year it was the banks' desire to sell insurance from their branches that drew critical fire.

This week has also seen the emergence of another issue -- a Parliamentary committee on banking is discussing whether the banks unfairly delay processing bill payments.

With so much criticism, it's tempting to ask, 'What have the banks done to upset Canadians?'

Over the years, Canada's big banks have been beaten up over everything from exorbitant profits to merger ambitions, to executive pay, to not having enough branches serving rural customers or the urban poor.

But there is another side to the story.

The ratio of ATMs to customers is higher here than anywhere else in the world. Canada is also ahead of the United Kingdom, the United States, France and Japan in terms of the number of branches per customer, according to data from the Swiss-based Bank for International Settlements.

Also, the average price of core banking services is lower here than in many countries, including the United States, Germany, France and Australia, according to a report from global management consultants Capgemini.

Of course, the banks are very profitable, too -- the combined earnings of the big Canadians reached almost $19-billion last year alone.

Out of those record profits, the big banks pay a combined $4.4- billion in taxes and $6.5-billion in dividends to shareholders. Which means billions of dollars into the public purse and billions of dollars to Canadian investors above and beyond the index-beating returns the sector has provided in each of the past five years.

"We have a lot to be proud of in our banks," said Laurence Booth, a professor at the Rotman School of Management at the University of Toronto who specializes in the banking industry. "The Canadian banks are very efficient and as well run as any banks anywhere in the world.

In private, bank chief executives admit they are irritated that Ottawa doesn't seem to give the banks full credit for the role they play in the Canadian society as well as the country's economy.

The banks pump money into the economy through expenditure on goods and services -- including $33-billion spent on technology in the past decade -- and significant contributions to charities and other community organizations.

And they employ almost a quarter of a million Canadians who earn an average compensation package of almost $100,000 -- well above the average for the wider Canadian working population.

There are some legitimate criticisms of Canada's banks, said Rotman's Mr. Booth, particularly around the too-large profits they derive from small businesses.

But the overall level of criticism may have gone too far, he said.

"The department of finance is worried the banks are so profitable," said Mr. Booth. But, he said, "We really can't knock the banks just because they are profitable."

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