Speech given by Mr. Tony Comper
Chairman and CEO, Bank of Montreal
May 2, 2000
Thank you, Robert, and good afternoon everyone.
I can't tell you how much I appreciate this opportunity to talk about how one of Canada's so-called 'old-economy' companies - my own - is establishing its 'new-economy' credentials.
Nor could I have asked for a better setting than 21st-century Montreal, which is rapidly establishing its own new-economy credentials as both a centre and a symbol of the IT revolution - or for a more technologically savvy and self-interested audience, the very women and men who are driving the revolution and, in the process, leading this great city back to economic pre-eminence.
And, while I'm on the subject, I'd like to congratulate the Board of Trade of Greater Montreal itself for the many critical roles it played in the renaissance, especially for how well you have got out the word on this region's unique advantages, from its fluently bilingual talent pool to the fact that this is the acknowledged #1 R&D environment in North America.
And I'd like to thank you as well. People who live in this city for any length of time - as my partner Elizabeth and I did in the Seventies, or who visit a lot, as we certainly do - have a tendency to fall in love with the place; or, at the very least, to forever take delight in its successes. You have, in other words, done a lot of old hearts good.
I won't push the comparison too far, but I cannot help but see at least a few interesting parallels between this new Montreal that you have been putting together, and the new Bank of Montreal that we have been putting together.
Both your city and my bank (and indeed all other big banks) were written off by many as just too old and too hidebound and slow to cut it in what is now being referred to as 'the new economy.'
Instead, as both your city and my bank are demonstrating with each passing day, we haven't merely gone along, we've gone right to the front of the class; we haven't merely adapted, we've broken ground and set standards. (I can't say I was at all surprised at last week's announcement of Nasdaq Canada here in Montreal.)
While your success is at last getting the recognition it deserves, however, we (and the other Canadian banks) still appear to have a lot of persuading to do, which of course is one of the reasons I'm here, delivering remarks titled The Key of 'E.'
Despite the fact that Bank of Montreal was the first bank in the country to create online loan approval (for example), and the first to create a full-service online bank, and the first to create a full-service online brokerage - and despite the E-credentials that I'm about to present - we are still referred to offhandedly in the media as an 'old-economy' company, implying, I suppose, that for us the ash-heap of history is right around the corner.
The irony is that as far back as a decade ago, we and at least some of our competitors foresaw the future of financial services as what it has indeed become - customer-centred, market-driven and electronically powered.
And we began to prepare ourselves. While it continues to be a fairly well-kept secret, in this country only one sector spends more than banks do on high technology, and that's the high-tech sector itself.
The other fairly well-kept secret is that we lumbering old 20th-century banks have proved ourselves to be a whole lot more resilient and resourceful than our critics (and even a few of our friends!) believed was corporately possible, and a lot more capable of making radical change.
And, let me tell you that for us, radical has been the operative word. Even I am amazed sometimes when I consider just how stunningly different we have become in a few short years, starting with the way we define the business that we're in:
We still handle money, that's true, but while it hasn't become just a sideline it's not our core business anymore either. Our real stock-in-trade these days is information - acquiring it and processing it and effectively putting it to work in the best interests of both our customers and ourselves.
If you're thinking this sounds good, but are wondering how it plays out, let me cite some examples of our considerable success to date in the E-business revolution - starting with what has become one of the biggest new-economy stories around, 724 Solutions.
In case you missed the recent coverage, 724 Solutions is a 'net-based company - www.724.com - that provides our customers with direct wireless access to banking and brokerage services by way of mobile digital phones, two-way pagers, and palm-pilot-type devices.
I have to admit that I personally really love all this stuff. I 'got into' computers, as they say, back in the Seventies here in Montreal, and one of the best jobs I had before this one had me in charge of information technology.
So I guess in the end it isn't such a great surprise that one of the key ways my Canadian bank will survive in this time and marketplace is by mastering E-business in all of its relevant forms, including the obvious next step, M (for mobile) business.
And it is hard not to be encouraged when you have a runaway success like 724 Solutions on your hands. Since the company went public at the end of January, the value of our 3.4 million common shares has ranged from $200 million to over $1 billion. Even at the low end of the range that's a pretty impressive return when you consider that our initial investment last May was just $2 million.
What's more significant, though, is the new revenue streams opened up by this kind of innovative joint venture. In the E-business trade, 724 Solutions is known as a 'B2C' company, as in 'business-to-consumer.' In less than three years' time, according to one group of analysts, B2C companies will be part of a $380-billion marketplace .
The same analysts predict that the B2B (as in business-to-business) marketplace is expected to reach $4 trillion by 2003, and we got very active very early in this area as well. Let me tell you very briefly about Cebra, MERX and EPOST.
Cebra Inc. is the Internet-based subsidiary we created nearly five years ago, as our first entry into the business-to-business E-commerce marketplace. In short order, Cebra begat MERX, still the only electronic tendering service for government contracts available nationwide.
When all three levels of government are counted in, tendering turns out to be a $5-to-6 billion opportunity, and MERX's customers have complete access to it all. MERX electronically enables them to complete the whole purchase cycle online, from inquiries and quotations to final invoices, shipping and payments.
In partnership with Canada Post, Cebra also begat EPOST, which can best be described as the world's first electronic post office, enabling its customers to both send bills and receive payment over the 'net. As you might imagine, we have great plans for EPOST as an alternative to the physical delivery of all kinds of printed material. It's a market with legs (as they say), and our people are right on top of it.
We're also on top of the auto lease and loan approval market thanks to a recent alliance with the CIT Group called FinancialLinx. By combining Bank of Montreal's advanced credit evaluation system with CIT's advanced online technology, we have produced software that dramatically reduces credit approval time. Dealers can use FinancialLinx to get approval in just seconds for a CIT car lease or a Bank of Montreal car purchase loan. At last count, 30% of Canada's new car dealers had signed up.
Finally, no Bank of Montreal E-business discussion would be complete without a reference to Competix.com, a joint venture with American Management Systems that has produced industry-leading loan-approval software and a leadership position in online lending. In addition, we have sold the system to 40 small American banks (who can't afford to create their own); and we will sell it to about 200 more before the year is out.
That isn't (forgive me) 'All About E' by any means, but I hope there is enough there to persuade all interested parties that whatever our other sins and shortcomings may be, we are in fact way ahead of the curve when it comes to practical new-economy thinking.
We use the Internet the way any sensible new-economy - or, to coin a phrase, TWO-economy - organization uses it: purely as a means to an end.
At the most fundamental level, we use the web to make many of our internal processes work much more efficiently.
In addition, we 'web-enable' all our products and services, by which I mean that we extend and/or redesign them for use by customers over the Internet.
You might say we use the Internet much the same way that, a generation ago, the airline industry used the jet engine: to provide faster cheaper service to existing customers; and, of course, to attract a whole new generation of flyers.
To attract our new generation of flyers - to reach new markets and customers we could not have reached on our own, but where we can demonstrably add value - we have taken the partnership route. And in structuring each partnership we ask ourselves the following questions:
Does the joint venture build on one of our core capabilities? Does it provide an entry point for us to become the dominant player in a new national market? And does it have spin-off potential?
Having delivered my bank's new-economy credentials, I think I had better point out that, like Greater Montreal, we are emphatically not staking our future on our E-successes alone.
There is a whole list of other things we must get right and will get right. E, in other words, is not our only key.
Our commitment to succeed in E-business was, in fact, one of six points in the high-growth / low-risk strategy I outlined at this year's Annual Meeting.
That strategy, in a sentence, is to build on our established strengths and exploit our every competitive edge; and to accelerate growth without accelerating risk; and to become the first bank in Canada, maybe the first anywhere, that truly does manage to 'get it right' with customers.
Of all the competitive advantages that produced our six-point strategy, none was greater or more obvious than our foresightful ownership of Chicago-based Harris Bank.
What Harris gives us, and what our Canadian competitors would all like to have, is a significant, advantaged presence in the greatest economy the world has ever known, as well as Canadian leadership in earnings diversification.
One of the best ways for a Canadian bank to ensure survival these days is to become an exporter of financial services. With 50% of earnings coming from abroad, a third from the U.S. alone, we have established Bank of Montreal as a major exporter.
Aside from the advantages Harris Bank gives us as a platform to the wider U.S. economy, its track record over the past few years especially convinces us that it can very well become the #1 full-service bank in the greater Chicago area; and, thanks to some cross-border leveraging, the premier mid-market and corporate investment bank in the American Midwest.
A third point in our growth strategy, one that also involves cross-border leveraging, commits us to the rapid expansion of our wealth management business, an area where we were strong to start with, and where we have plans to get considerably stronger.
Between now and the end of 2002, for example, we will be deploying an additional 750 Investment Fund Specialists in our branches; and BMO Nesbitt Burns will be adding 500 new Investment Advisors over the next five years.
The fourth point in our strategy also commits us to getting significantly and measurably better at something else we are already good at (as we should be after 183 years): personal and commercial banking.
We are continuing to improve service through our electronic channels, where we expect to double our client base to two million telephone and/or Internet users by 2002.
We have set our sights on becoming the premier mortgage and consumer lender in the country, and realistically so: We have some $52 billion out there in mortgages and consumer loans right now; we've been growing our market share aggressively over the past decade or so; and we are playing to one of our most well-established strengths.
We are also intent on making Bank of Montreal the dominant player in Canada's highly attractive small and mid-sized business market, an area where we now have 438,000 customers, where we enjoy a market share of almost 18% for loans up to $5 million, and where we are top five on the continent in loans of up to $1 million. And where, we recently announced, we will be investing $100 million over the next two years.
One of the strengths we're playing to here, I'd like to point out with just a tinge of pride, is our ability to custom-finance knowledge industry companies.
In the six-plus years since we established our first Innovation and Technology Centre in Montreal, for example, we have provided more than $350 million in financing for more than 120 knowledge-industry clients here in 'the Hub,' thereby helping to create more than 2,000 jobs. (You may be interested to learn, by the way, that as of yesterday our Innovation and Technology Centre had relocated to downtown Montreal - on St. Catherine Street West at the corner of Drummond.)
At a time when standard commercial loans were contingent on cash flow or credit ratings, our specialists came up with a new and decidedly non-standard range of options - interim financing, for example, and contract financing, and foreign accounts receivable financing.
As of a couple of months ago, we were able to add asset-based financing to that range of options, which means we now have both the capability and the confidence to make loans to small and mid-sized businesses based solely on inventories and receivables.
Does that make it riskier for us? Less so than you might think:
First, we are able to call on the expertise, once again, of our people at Harris Bank, where they've been at it for eight years and where they now have more than $1 billion outstanding in asset-based loans.
And second, at Bank of Montreal we consider risk management one of our greatest strengths.
The fifth point in our six-point strategy is to build on our existing strong leadership in investment banking in Canada and to selectively improve upon our U.S. position, specifically in the energy, agribusiness and media and telecommunications sectors.
Just last week, for example, we committed $667 million to fund merchant-banking investments in media and telecommunications companies; and we put a dynamic, New York-based leadership team in place to spearhead our efforts.
The final point in our strategy commits us to ongoing cost, capital and risk management. We are reducing our operating costs, getting out of low-value, capital-consuming businesses, directing capital into businesses-of-the-future, and honing our risk management skills to an even finer edge.
We have realized about $225 million in sell-offs in recent months alone, surpassing the target we'd set for ourselves, which bodes well for the future. We are also cutting this year's expense base by $250 million.
I really do want to emphasize, however, that not one cent of those costs is being cut at the expense of customer service. Quite the contrary, in fact: we are going to be investing in getting it right with customers. We are spending more than $20 million over the next year right here in Quebec to enhance our branch network including building both mega-branches and in-store branches.
As I have said on many occasions, the success of our six-point strategy, indeed the success of each individual point, directly and ultimately hinges on being able to consistently deliver what the textbooks refer to as 'the optimal customer experience.'
Getting it right with customers, in other words, is not some idle catch-phrase or exercise in wishful thinking, not when you have to compete (as we do) in a fiercely competitive customer-centred world, a world where we need them a lot more than they need us.
So, as a first order of business, we are teaching ourselves how to understand every customer's needs so well that we are routinely presenting solutions before those needs are articulated, and to look upon the financial success of every one of our customers as a personal challenge.
When we have that value fully in effect -something I have taken on as MY personal challenge - what we will have is an organization at the top of its game, focusing its resources exclusively on the things it does best and most profitably; a two-economy company, designed and built for success.
In concluding, let me simply say this:
Less than a year into my tenure as Chairman, one goal remains uppermost in my mind. I want history to record that it was during my watch that Bank of Montreal made the breakthrough as the first bank to finally, truly, 'get it right' with customers. Every customer. Every time.
I thank you for your interest and your kind attention.