Bank of Montreal (TSX:BMO)

Investor Day 2012

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Jun 26, 2012

Let me repeat Sharon's welcome to all of you here in Chicago and on the webcast, and just say how much we appreciate you taking the time to spend 2 days with us, for those of you who are here in person. Our last Investor Day in the U.S. was in June of 2005, and a great deal has changed, both in market dynamics and the position of our bank in this market. Each one of our 3 principal operating groups is in a different competitive position, and each one of them is positioned for future success. There are some things that haven't changed quite as much. Of the 33 analysts and investors who attended in person in 2005, 17 are still covering BMO, and I'm happy to see that 10 of you who were here in 2005 are in the room this morning. I hope everyone found the tours of Hinsdale, Oak Brook Terrace, and the trading rooms here in Chicago to be productive. As well, those of you who missed the tours because you went to the Cubs game or played Whistling Straits, I hope you have an opportunity to visit a branch before you go home. I think it's notable that only 5 members of the 25 members of management who presented in 2005 are here today. I think that reflects both promotions and reassignments within the bank, but also the consequence of acquisitions and some very active recruitment into the business. I recall in 2005, there was a recurring question in the sessions about our willingness to pursue a large in-market acquisition at a time when valuations were approaching 3 times book, and as well, whether we'd consider vending our U.S. business into a minority interest in a much larger entity. In retrospect, the discipline we maintained has paid off. One thing we did commit to was tripling the size of our business across a larger Midwest footprint. You might recall at the time, we had 190 branches concentrated in Chicago. Today, we have about 660 branches and a number 3 market share across a 6-state area that has a GDP and population about the same size as Canada in aggregate. In the period since 2005, the performance of the Bank of Montreal has materially strengthened. Wealth management is now a much larger proportion of BMO overall. Capital Markets is now just under 25% of the total bank, and it's performing very well. P&C Canada is showing good growth, both top line and net income, high customer loyalty, and a very clear defined brand position in the Canadian marketplace. When we announced the acquisition of Marshall & Ilsley in December of 2010, we provided very clear transparency around the Basel III common equity ratio, with 2019 rules fully implemented. You might recall at the time, the number at the end of 2010 was 7.8%. Since then, we've made a $4.1 billion acquisition, and at the end of the last quarter, the common equity ratio had been restored to 7.6%. You'll recall, we had contemplated the possibility of raising up to $800 million of equity and didn't do that. The earning power of the bank itself, the ability to rebuild the capital very quickly post-acquisition, is a sign of the overall strength of the organization. I think as you listen to the discussion today about the dimensions of the three business groups that are going to talk to you about the business potential, you will gain an understanding of how much operating leverage there is in the business. Today, we have a U.S. platform that provides strong opportunities for growth across all dimensions. Most importantly, we have delivered on what we said we were going to do, and we have done it in the way that we said we were going to do it. The combination of the businesses looks more attractive today than it even did in December of 2010. The branch platform conversion is right on schedule. The overall integration schedule has been ahead all the way through the process. Synergies are ahead of schedule, as you will hear. Most importantly, platform capabilities have been enhanced. We have strengthened the combination in BMO Harris Bank well beyond what we originally contemplated when we approached the acquisition transaction, and you are going to hear quite a bit about that in the course of the morning. We have rolled out the BMO Harris Bank brand. It is designed to reinforce customers' expectations around making sense of complexity and making a better choice and having confidence. What we have not done is we have not heavily promoted that brand pre-conversion of the Marshall & Ilsley branches, which will take place in late fall. For the frontline employees and for the customers, the reinforcement of brand and brand position is going to be a critical element in future growth. It is something that I think is going to pay off very significantly, and we have seen it in Canada. Just the weight of a brand focus in the market does enhance competitive position, and it enhances confidence of the frontline employees. We have done a great job around employees. The stability of the workforce has been remarkable. The way in which the teams are working together has been remarkable. We just completed our annual employee survey bank-wide and in the U.S. In the midst of very significant conversion work, employee engagement, already at high levels, was up, and commitment to the bank and the brand promise was up. We are going into the period post-conversion in a very strong position. We are delighted to have the opportunity to showcase the businesses today. You are going to hear from Capital Markets, from Wealth Management, the Private Client Group, and from Personal and Commercial Banking in the U.S. Each one of them, I think you are going to find both the quality of the management to be impressive, I certainly have a great deal of confidence in them, but the focus they have on growing the business in a quality way and the alignment between the businesses is something that I hope that you will recognize. In every dimension, our businesses now are aligned across a North American foundation. We are serving over 12 million customers. Our U.S. business is integral to the long-term strategic objectives of the bank. Approximately a third of our revenues in the first half of 2012 came from the U.S., and the work underway is going to continue to strengthen the profit contribution from all of the businesses that you're going to hear about. I think it's most fitting that we have this U.S. Investor Day here in Chicago, given the long relationship we have with this community. Our founding in Chicago dates back to 1861, when a group of Chicago grain merchants encouraged the bank to set up a permanent agency. At the time, we were a leading source of finance for Chicago's export trade, had been described in local newspapers as one of the most reliable banking institutions in the United States. One of our early competitors was N. W. Harris & Company, which was founded here in Chicago in 1882, and which, as Harris Bancorp, eventually became part of the Bank of Montreal Group in 1984. Since then, we've had a consistent strategy of growing our U.S. businesses with an emphasis on the Midwest, and we've applied a disciplined approach to execution that's paid off. The acquisition of M&I has, in some sense, transformed our U.S. operations by doubling the number of branches, and as I said, giving us a number 3 market share. Most importantly, it's given us extremely valuable infill opportunities within our footprint. It also has presented significant opportunities for growth in wealth management. It significantly increases the number of private banking locations, personal wealth accounts, and most importantly, client assets. You're going to hear more about the impact on both personal and commercial and PCG in the presentations. We intend to build a U.S. presence in the Midwest that's uncontested and to position ourselves to compete successfully everywhere that we do business. It means focusing on new customer relationships, deepening existing customer relationships, understanding our customers' relationships with money or relationship with money. This is an attractive market based on size, wealth, the fragmentation of the market, and we think it's going to allow significantly higher growth rates going forward. In this sense, our strong market position in the U.S. Midwest is a source of competitive advantage. As I previously have said, we have a goal of achieving $1 billion in net income from our U.S. personal, commercial, and wealth business in the medium term, and I might note that that's about a five-fold increase from 2010. In our capital markets business, we've strategically invested in a mid-cap focused U.S. business and expect a contribution of approximately 20% of our total U.S. earnings in the medium term. You're going to hear from each of the businesses how they're going to execute their strategy and how they're going to grow their business. BMO first opened for business, rather, in the United States 190 years ago. We have deep experience across multiple regions, across multiple segments, and the bank has a reputation across the United States that's consistent with the brand promise. We're very excited about the growth prospects. We're confident in the position of our businesses. We have very strong management, and I have confidence in their ability to deliver against the strategies and their commitments. I hope you are going to leave this session with a clear sense of our strategy, the strength of leadership, and confidence in our ability to grow the business. With that, I would like to turn it over to Tom Milroy and the members of our U.S. Capital Management leadership to start us off. Thanks. Thank you, Bill, and good morning, everyone. Before we get started with the formal presentations, I wanted to make a few introductions. Joining me on the head table today are Perry Hoffmeister to my left, who is the Head of Investment and Corporate Banking U.S., and Alan Tannenbaum, who is the Head of U.S. Equities, both of whom will provide a profile of their respective businesses as part of our presentation. Perry was with Lehman Brothers for 21 years, most recently as Co-Head of Investment Banking for Europe and the Middle East. Alan spent 13 years at Lehman, most recently Head of U.S. Institutional Sales. He has spent 22 years in our industry. Also joining us in the audience, is Luke Seabrook, Head of Debt Products and Financial Products, Debbie Rector, a Managing Director in our FX group, and Lyle McCoy, Managing Director of Public Finance and Infrastructure. Together with Perry and Alan, these executives have over 100 years of experience. Now let's move to our formal presentation. BMO Capital Markets' vision is to be the lead North American investment bank that enables our clients to achieve their ambitions. Building on the strength of our Canadian franchise, we have been investing in the U.S. business since 2009 with a focus on building out our capabilities and infrastructure in critical areas across product sectors and geographies. With significant investment and focus in the U.S., our expectations are that U.S. business will contribute more to the overall BMO Capital Markets bottom line in the next three years, while providing us with another source of growth. Perry and Alan will profile some of the investments we have made specifically in I&CB U.S. and U.S. equities. The execution of our U.S. strategy will permit us to achieve our financial objectives without introducing outsized volatility. Our focus on becoming a lead North American investment bank is well-founded. We have distinguished ourselves in the market, both globally and locally. Currently, we are ranked in the top 20 global investment banks by fees for 2012, and we are rated the best investment bank in Canada by Global Finance for 2012. We contributed approximately 23% of BMO Financial Group's net income in 2011. We have a proven track record, which is supported by a client-led business. In turn, supported by a strong balance sheet. We are a full service investment bank with 30 locations and over 2,100 professionals focused on both issuer and investor clients with a breadth of product and service. Recent product offering expansions include reestablishing ourselves as a primary dealer and expanding our public finance business. Our objective in the U.S. is to be a premier mid-cap investment and corporate bank, supported by a full service distribution platform. Our investments in the U.S. build on the strength and knowledge of our Canadian business. We are successful in all these businesses in our Canadian franchise. We are differentiating ourselves in several ways against the U.S. competition. We offer a highly rated, successful, and trustworthy North American universal banking model. We have a broad, integrated offering and top-tier expertise that allows us to serve mid-cap clients with an integrated offer and industry expertise, supported by our strong balance sheet. We are focused on strategic sectors where we are competitive and differentiated, which include global, North American, and U.S. focuses. Perry, in particular, will focus on this in his section of the presentation. In trading products, we offer a full service distribution platform in conjunction with being a highly rated and stable counterparty. Since 2009, we strategically invested, as I mentioned, in the U.S. business. In equity products, debt products, and financial products, we focused our build-out on the distribution platform, including the addition of complementary businesses that support our clients across these different lines of business. Some examples include developing a complementary and well-aligned fixed income origination and distribution platform focused on core North American government markets and targeted corporate sectors. We built out our financial products offering capabilities similar to what we have in Canada by adding and expanding listed equity options, U.S. equity derivatives, and our structured note offering. In investment in corporate banking and research, we focused on investing in human capital and expanding our capabilities in the sectors where we believe we are competitive and differentiated. We have deepened our core relationships, including aligning equity products and I&CB U.S. resources to close capability gaps, such as hiring investment banking managing directors in key sectors to complement research and vice versa. We have added banker teams in the following areas: food and consumer, technology, REIT, this is a sector which is very high generating in the mid-cap space in the equity capital markets, and energy. Energy in Houston, we have been in that business for over 50 years. We are a Canadian leader. What we added in oil and gas acquisition and divestiture capabilities into the Houston market and some additional bankers, which has significantly increased both our M&A business and our financing business. We also upgraded our financial sponsor group with five additional bankers, as this represents approximately 40% of the fees in the mid-cap space. Investment across these businesses is critical, as these businesses are highly interdependent. For example, equity products clients wish to invest in IPOs and secondary offerings originated by investment and corporate banking, and investment and corporate banking clients seek research and distribution capability from equity products. The team that we have assembled is very talented, and we are actually very successfully competing against our competitors. We think that we have executed about 70%-80% of our long-term growth strategy. We have experienced some frustration coming from the headwinds, as a result of the slower economic recovery in the U.S. and the challenges being faced by the EU. Notwithstanding that, we are encouraged by our progress and we are seeing very positive signs that our strategy is taking hold. Some of those leading indicators include in our newly expanded U.S. listed equity options group, we have achieved our first ranking in the Greenwich survey, coming in 15th in the U.S. market. Our newly launched U.S. converts business, which is both origination and distribution capability, is seeing account growth despite the challenging environment. The number of actively traded accounts reached a new record high of 69 in April of this year, an increase of 62% year-over-year. Success is also translating into client recognition, where we received 17 of the 100 votes cast for BMO by Pyramis and PIMCO trading for the first time. BMO FX trading moved from 17th to 9th as a North American FX market maker, and volumes in the U.S. have doubled in the real money client segment since making the investments we made both in the U.S. and London. In the public finance and infrastructure space, we have seen improvement as well. On the public finance side, senior managed deal size has increased multifold since we have expanded the business. On the infrastructure side, we saw just recently their first P3 capital markets transaction, which was an innovative capital structure transaction valued at CAD 663 million for the Virginia Midtown Tunnel in the U.S., and it is really a key project for our team. Both Perry and Alan will expand on these points and other success indicators as they go through their sections. We continue to refine the business to adapt to the changing regulatory environment related to Basel III, Dodd-Frank, and or including the Volcker Rule. While we slowed down our growth plans to reflect current market conditions, we remain profitable and focused on executing on the balance of our strategy. We are comfortable with our progress, and we are very happy and confident in our future success. With that, I would like to turn it over to Perry to provide you with a few more specifics about the investment in corporate banking business. Good morning, everybody. Tom, if you would not mind passing me the clicker. Thank you. Good morning. I am very pleased to be here with you today, and I am looking forward to reviewing with you our I&CB U.S. strategy and telling you a little bit about our progress. Our strategy is to bring clients the best of both worlds, the boutique model and the bulge bracket model. That is why we put our logo right in the intersection of those circles. The good news is this is where clients want us to be as well. What it means is that we differentiate ourselves with clients by bringing our clients the attention and focus and expertise of the best boutiques, combined with the strength and stability of a full-service universal banking platform. We focus our efforts in the U.S. by defining our target market as the midcap segment. Midcap we define as companies valued between $200 million and $5 billion in range. We think that segment of the market is underserved. I am going to show you some statistics on the next page about why this is the right sector to be focused on. We further organize ourselves along product lines, and you see some of the key expertise areas that we have. There are sub-products beneath this as well, where we have expertise, including converts, preferreds, FX, and commodities. Then we also organize ourselves by industry focus, and this is where our industry expertise sets us apart. We are focused. We are not trying to be all things to all people. We are concentrated on these power alleys, and we have picked these power alleys for a number of reasons, including, or most importantly, because they complement strengths of BMO in areas of real expertise. Over the last several years, we have invested in our capabilities in these areas, really by hiring some fantastic bankers who bring a lot of experience to bear for us to share with our clients. To give you some statistics about that. Today, almost 60% of our managing directors in I&CB have bulge bracket investment banking experience, and the average tenure of our managing directors is 21 years in investment banking. Here is the data that reinforces our view that the midcap space is the sector where it makes sense for us to focus. On the left, the small cap sectors, you can see not very many transactions, and the average revenue per deal is also not significant enough to be profitable for a full-service investment bank to be focused. On the right-hand side of the page, the large cap sector, that is the most competitive sector in the market. The middle is where we are focused. It is the most dynamic sector. There are about 7,000 corporates in the U.S. It is the fastest-growing. It is the segment where the midcap banks have the most significant share. The economics are good, and as you can see, the last row there, almost 40% of fees come from the financial sponsor community, and that explains our focus on that segment and our dedicated coverage effort there. What is our strategy to achieve our objective of being the premier investment in corporate bank in the U.S. midcap segment? It is three things. Alignment and focus. What I mean by that is we win when we bring all of our capabilities to a client because we have so much to offer. Now, you cannot do this with every company in every industry, so we are not trying to be all things to all people, but we have a very targeted strategy. We are focused on industries where we are differentiated, where we have the industry expertise, and on companies where we are or we can be the trusted advisor. Relationships, it is really what it is all about. By bringing differentiated advice because we know the industry so well, we know their company so well, and we can support our clients with all our other products, whether it is credit or research, whatever they need. That is when we become their trusted advisor, and that is how we stand out. Then productivity. That is really about becoming the lead advisor or lead on the financing. How do you do that? Well, we sell our enhanced distribution capabilities. We don't ask companies to put us into their transaction as a favor. We do it because we convince them that we're the best at distributing their securities because we're the best at telling their story. Business begets business. The more we demonstrate our ability to lead business, the more clients will continue to work with us or want to work with us. Is the strategy working? We're seeing tangible signs of success, both in our financials and in the size and type of deals that we're doing. Here are some of the proof points. I've selected only a handful of the 125 or so deals that we've led this year to highlight. I've picked different industries and different products. You can see up here, energy, food, consumer retail, technology, real estate, healthcare, industrials, and business services, all represented. Equity transactions, M&A, and bonds and loans. Two deals I wanted to highlight for you, one in the middle row for El Paso and one in the bottom row for Samson. The reason I wanted to point those out is those are the two largest global LBOs done this year, and BMO was a book runner in financing both of those transactions. On the right-hand side, a couple of highlights. Our M&A business had a record year in 2011, and despite market volatility, we're on track for another strong year. Our equity business is a little slower than I would like this year, largely because of what's going on in the market. To make sure we're positioned for when the market does come back, we've hired a new head of equity capital markets to continue to drive that business forward. Our debt business is going from strength to strength. Benefiting somewhat from the market as well, but a lot of the investments we've made. More on that on the next page. To leave this page, what I want to leave you with is the thought that we are winning franchise-defining business that we're very proud of. Here's an example of one of our businesses and the progress that we've made in the investment banking market in the U.S. I picked this to show you what happens when you combine client focus, a desire and ability to lead deals, and a real ability to distribute. As you know, these days large loans and bonds are distributed in the same way. They're sold to institutional investors, and then they're traded. We recognized that, and when we started building our fixed income distribution business in late 2009, 2010, we built it to take advantage of that, to be agnostic between trading and selling loans and bonds. That, combined with the focus we had in 2010 of bringing on high-quality coverage bankers, you can see the results. I think the results speak for themselves, but just to highlight a couple of things. Year-to-date, we've already led more deals than we did in all of 2010. The graph here is a graph of number of transactions. We've led more deals, and it's led transactions that we've led. Led more deals than we did in 2010. Year-to-date, we've already led as many high-yield deals as all of last year. On the right, I talk about volume in terms of volume raised in transactions that we've led for clients. We have increased that number by an impressive 55% over the same period last year. Just the last point in one of our power alleys, as you heard Tom Milroy mention, in energy, which is a big focus for us, obviously, given our Canadian heritage and the fact that we have been in Houston for 50 years. I am proud to say that in energy high-yield transactions, we rank sixth year-to-date. In summary, three points I wanted to leave you with. One, we have a very targeted strategy in the U.S., targeted in the mid-cap and in the selected industries where we believe we have a competitive advantage with companies where we are already a trusted advisor or where we believe we can become a trusted advisor. We differentiate ourselves through our universal banking model, which means we can advise, we can lend, and we can distribute. We have got the experienced bankers that clients respect and want to work with. We have a client-focused approach, which means we value and are building long-term client relationships, and we think that also sets us apart. Lastly, it is working. We are taking fee share as measured by Dealogic. Our revenue has grown by a 25% compound annual growth rate from 2008 to 2011, something that we are very proud of as an investment bank, and we are doing it profitably. With that, I am going to turn it over to my colleague, Alan Tannenbaum, to discuss the equities business in the U.S. Thank you, Perry Hoffmeister. Good morning, everybody. Our investor relations team has reminded me that most of the people in the audience today live and breathe the business I am here to discuss. Please keep all of the difficult questions to the next group of presenters. As our important investor clients and worthy sell-side competitors, you are all intimately familiar with some of the challenges facing equity businesses globally. Yet the key message I want to communicate is that BMO is growing, improving, and expanding our U.S. equity platform. While many of our competitors are retrenching and restructuring, BMO is building and moving forward. This positioning sets us apart, really resonates with our clients, and as a result, we are gaining mind share and taking market share. We will get into some of the performance metrics in a couple of minutes, but a key data point you will be familiar with is our McLagan market share. With the first quarter of 2012 data out, we now have five quarters in a row with year-over-year market share gains. We are investing and showing real progress. Let me walk you through our story. To start at the 30,000-foot level, the BMO equity business is part of a full-service investment banking offering in the U.S. For our target clients, which are the top 250 U.S. institutions, BMO delivers research, sales, and trading across all major asset classes, which includes equities and equity-linked, fixed income, derivatives, both listed and over-the-counter, foreign exchange, and commodities. This range of capabilities enables us to engage with multiple portfolios, multiple portfolio managers, and the full range of analysts within the top institutional investors. As you know, the greater the number of touch points, the greater the number of revenue sources across each client, the more relevant we become, the larger our share of the client wallet. Having all of these capabilities matters today more than ever. As our counterparties and clients are shrinking their lists and demanding more and more of their sell-side providers, the depth and breadth of our service is critical. While there are dozens of firms that are competing for market share in equities, the number of firms that can deliver this range of capability across asset classes is far more limited and a real differentiator for BMO. Moving down to the 10,000-foot level and focusing on our equity offering, with most of the sell-side analysts covering BMO in attendance here, I want to make it clear that it all starts with research. Research should definitely have been the first box on the slide here. I do not know who messed that one up. An impactful team of analysts that delivers high-quality, value-added content is really the key to our success. We have that team in place today. Since this presentation was put to bed, we have had five of our analysts receiving 2012 Wall Street Journal StarMine Awards for excellence. We have made steady progress in the Greenwich Associates polls, and we have two of our analysts who were recognized in the 2011 Institutional Investor poll. This year, we expect to do even better. In total, we have over 30 analysts in the U.S. covering more than 500 stocks. With a number of standout analysts, we have particular strength in our tech and consumer teams. Partnering with research is an experienced, capable sales and trading team. Our team has deep institutional connectivity to deliver content and trade effectively and access liquidity for the most demanding clients. To interface with our clients in trading today, we require both high-touch and low-touch expertise. In addition to adding to our high-touch capabilities in the past couple of years, our electronic trading team, headed up by Sean MacKenzie, has deployed a competitive trading venue that allows our clients to access us directly or through their BMO counterparties. Continuing on the product spectrum, and again leading with impactful content, we also have a highly regarded derivative platform that is content-driven and has a strong execution capability for those clients who are willing and able to express their investment decisions in the options and derivative markets. Again, as you are familiar, the corporate access aspect of our business has become integral to our success. We capitalize on the relationships our research, banking, and sales teams have developed over the years in order to create unique events to facilitate investor access to leading corporate management teams. I would highlight our recent Silicon Valley tech tour, where we hit our capacity with 40 clients spending four days in meetings with us with the likes of Peter Oppenheimer, the CFO of Apple, and senior executives from Intel, Hewlett-Packard, SAP, Cisco, and others. In addition to non-deal roadshows, we host several conferences in the U.S., including last month's very successful Farm to Market conference that leverages our food and agriculture franchise that Perry touched on, which is something that flows across our capital markets businesses. Another aspect of our offering that we see building momentum is our new issue product. Perry went through the progress we have made in banking, and that pipeline for IPOs, follow-ons, and equity-linked product is building. The new issue product is important as it gives us a proprietary opportunity to engage with our clients. It changes the profile of our overall brand, and these are also higher-margin revenue opportunities. I want to make one last point here. We continue to effectively leverage our Canadian product. The 27 analysts, including Mr. Reucassel, and more than 350 stocks covered north of the border. As we have enhanced our U.S. product in the U.S., we have not lost sight of the strength of our Canadian platform in the U.S. We are viewed as one of the leading providers of content for the Canadian market, an important liquidity provider for our U.S. clients. Our metals and mining franchise and the conference we host in Florida in February has created a tremendous brand for us in this space. In addition to the obvious synergies between the U.S. and Canadian pieces of the business, the fact that BMO does manage them as one integrated business allows us to centrally manage risk, leverage our technology investments, and share know-how across borders. When I joined BMO just over two years ago, my particular focus was on the build-out of our equity sales team. We have, in the past two years, hired 23 salespeople in the U.S., 11 senior and 12 junior. The senior salespeople joined us from the likes of JP Morgan, Barclays, BofA Merrill, ISI, and Piper Jaffray. In addition to several high-profile hires, it is important to note that we have highly successful salespeople who have been on the BMO platform for several years. I am particularly pleased by the integration and partnership I see throughout the team. At this point, as you can see on the slide, we have fully staffed sales teams in New York, Boston, Chicago, Houston, and San Francisco. The U.S. presence mirrors our capabilities and commitment to both Canada and Europe. On a global basis, we cover approximately 1,000 accounts, while in the U.S., as I mentioned earlier, we have a particular focus on the top 250 institutions. We have added salespeople with demonstrated track records of success and deep relationships with the key institutional accounts. Now let us look at some of the results. This is our progress report. Our push into the market for U.S. equities is now in its second full year. To go back through the steps, first, we built a strong research team. Then we put in place the sales and distribution platform. Now we are completing the build of our trading engines to monetize this investment. The early results in the U.S., in what has been a very challenging environment, have been encouraging. Ultimately, the most important metrics for our business are profitability and revenue growth. But as we go through the build phase, the key metrics are mind share and market share growth. Our clients, all of you, provide us with good feedback on mind share, and there are good industry metrics around market share. The first metric we look at on the left here is mind share as measured by the client votes. Most of you are familiar with the votes. Either you complain about having to participate in them or like us, you wait with bated breath to get these quarterly or semiannual report cards. By the way, just a side note, June is a very big voting month, so please keep your BMO analysts and salespeople in mind. For those not familiar, most of the largest U.S. institutions conduct a vote of some kind to measure the impact and value of their content providers. These results range from highly detailed to simple numerical rank. We have progressed in 18 months from ranks in the 30s to the low 20s with very good upward momentum. Our objective is to consistently rank in the mid-teens for mind share. Rank only matters if it translates into revenue. Not surprisingly, mind share does lead market share. Additionally, in a declining environment for secondary commissions that our industry has experienced recently, taking share can be particularly difficult. The market share data here reflects McLagan data, which is a leading industry source for this information. Our overall market share over the past full year increased 14%, while the share gain with the target 250 clients is a more impressive 23%. As I stated at the beginning of my remarks, the first quarter trend continues to be very positive. We are growing and taking share in a competitive market. To conclude, the opportunities and objectives for our equity business are clear. The U.S. secondary commission pool that we address is a $6 billion-plus opportunity with the derivative businesses, new issue, and other businesses layered on top of that. Our objective is to capture a top 20 position in both mind share and market share in the medium term, and a position closer to 15 in the longer term. At that point, we are confident that we will be delivering significant value to you, our clients, as well as to the BMO Financial Group. We will deliver on this by, one, marketing the full BMO Capital Markets platform. For us, this means delivering the full breadth of our capabilities to the client. Two, as you consistently hear from Bill, BMO Financial Group strives to define great customer experience. For us, this means high quality, value-added content delivered by experienced, high-impact salespeople connected to a world-class execution capability. Finally, we must leverage our strengths and the significant investments we have already made. The people, capabilities, and know-how are largely in place to deliver on these objectives. In addition, we can leverage the strength of our market-leading franchise in Canada and the strong balance sheet that Perry and Tom Milroy referred to. I am confident that the U.S. equity team is a strong one, and we are making great progress towards our goals. Thank you for your time and attention, and I look forward to updating you all on our progress in the future. That concludes the formal portion of our presentation. I am going to pass it back to Tom for the question and answer session. Thanks, Alan, and we are happy to take any questions. I think you need to get a mic before you ask a question, and I will pass the questions, if appropriate, on to my fellow executive colleagues who are here. If it is a really tough question, we will obviously get John Reucassel to answer it. Are there any questions? In the back. André-Philippe Hardy, RBC Capital Markets. Tom, you brought up regulation, Volcker being one of them, and I appreciate there is still uncertainty there. But as you look at your businesses and your revenue mix, how much of it do you see being impacted by Volcker, that is, what is the worst-case scenario here as you look at the implementation over the next few years? We have obviously looked through all of the businesses against the lens of what we understand the direction that the regulations are finally going to take. That has allowed us to resort the profitability of the various businesses and to decide what are the management actions that we can take to, in many cases, get back to similar levels of profitability as we transition through it. In terms of overall, we think there is downward pressure on the ROE and the business. We continue to believe we will earn a high teen 20% ROE. We have got out of already our index arb business as one that we thought, given where we saw directionally things were going, was a business that did not make sense for us. Some of the other businesses we are still looking at closely, but a lot of the businesses, we think with the passage of time, some of the derivatives businesses now be cleared will actually be good businesses going forward as they were before. It is an awkward period of transition as we get ourselves there. But we think that the industry in Canada is actually fairly well positioned in terms of the returns they can make even under the changed scenario. We certainly feel that for ourselves. I had a second question. Typically, when times get tougher, you often see the bulge brackets try to move down market and go after the mid-market. Are you seeing some of that happen in this current cycle, or you haven't seen it yet? Yeah. We've seen a little bit of that. As Perry likes to call it, they dabble as the pressure comes on. But we compete in the sectors where we're actually competitive and differentiated. We compete with them all the time anyway. But what we've seen is in size of deal, we've seen them start to creep down. We continue to win our fair share, or they might think more than our fair share. We haven't seen it being an issue, but we have seen them look for business that they wouldn't normally go. Perry, I don't know if you want to add anything to that. No, I think the way Tom, you answered that is exactly right. We've seen them, for instance, waive some of their fee minimums in M&A transactions to do smaller transactions. But as Tom said, we compete against the bulge brackets in a lot of our situations because remember, it is a competitive market out there, and we've got the bulge bracket competitors and the boutique competitors, and we think we've got our value proposition just right relative to both of them. The other thing is that I think, and this has happened over the years, is that a lot of our clients and think about where we're focused on the midcap, they've seen this act before where all of a sudden they're told that they are the most favored nation for some bulge bracket firm who then promptly when the market comes back, disappears and goes somewhere else. I would think my belief is the client base is a little bit more wary of that as well. The other thing is that they're not held in the same esteem that they were once in terms of their brand value. All of that I think has positioned us very well. There are a couple of questions back there and one My turn? Okay. Yeah. Looks like everyone got in. Yeah. Gabriel from Credit Suisse. Sorry if I missed this. I missed the trading floor tour. Did you talk at all about any corporate lending books that you've purchased from Europeans? Is that something that you're actively pursuing right now, and if so, could you quantify it? Then just on the equity allocation, we get the total capital markets equity allocation. Is that kind of fully reflecting the new Basel rules now, or is there more allocation of equity going to be more capital markets? Yeah. So two questions then I'll come back. Let me do them in reverse order so my memory will work. In terms of the equity allocation, it's not fully Basel III yet. We're kind of in a halfway step on the way there. So we would expect by the time we get to next year, it will be fully Basel III. We are reflecting what we believe the fully loaded Basel III capital will be as we price transactions and as we think about the business. So we are fully reflecting it in our pricing models. But in our actual business now, we don't have the full Basel III load. Okay. Just a follow-up on that. Now you're going to make me forget your first one, so you have to. I'll ask it again. It's just under $5 billion to total capital markets. What would be the U.S. component of that? I don't think we disclosed that. It would be roughly half though, but I don't have it in front of me. Tom, I don't know if. More like around a third. More like a third. Okay. Says my Chief Financial Officer. I forget my own second question. You started off- Oh, the European lenders. That is right. We have had this. The discussion on the corporate loan book is we have not yet bought a full pool or an offering. When we have looked at the offerings, there are often loans that you like, but it come along with a lot of garbage. We have not managed to get our head or there are the size that does not make sense for us. What we have done is we have been able to pick off the positions that were previously held by a number of the Europeans, either by buying them directly or by in extensions or refinancings, displacing them and taking either new share or a larger share for ourselves. We have actually found that additive to the growth of our loan book, but we have not done anything in terms of buying a large loan portfolio. Thanks. Okay. Thank you. There were two questions in the middle and the back. You have to get your hand high so people can see it. On the very last row. Why do not we start there, and then we will come back? Take your time. Hey, Chris Bonafede from Hutchin Hill Capital. In the equities business, given that you've built out the infrastructure, and that's completed, I assume, what are you doing to manage the expense base, given that volumes are particularly low in the cash equities business? Alan, you want to take a stab at that? Sure. From our perspective, there are really two components to that. The first is the non-personnel expenses, which I think like everybody in the world today, we are going through our expenses with a fine-tooth comb, really trying to maximize the value we're achieving from every dollar that we're spending and making sure that whether it's travel expenses, client entertainment, our exchange costs, trading costs, that we're managing those, our data feeds as aggressively as possible. There's clearly savings to be had there. On the personnel front, we're extremely excited about the team that we have in place. We have the luxury of not having overbuilt in a bubble period between 2004 and 2008. We have a team that's sized to address the opportunity that we feel great about. The key objective for us is keeping that team together. It's too early in the year, nor would it be appropriate to discuss our year-end compensation dynamics. We recognize that, in a challenging environment, all the aspects of the team have to absorb some of that challenge. Again, as we look at our business, as long as we keep taking share, and while we'd be disingenuous to suggest that we're excited about the revenue picture we see today, on a relative basis, we feel very good about what we're accomplishing. We feel that, from a revenue perspective, we're doing well. Most importantly, as we continue to take share, the team really needs to stay intact. Okay. John Aiken with Barclays. Can you try to quantify or tell us how much the dislocation in the market has helped your growth over the last five years or so? In addition, how much is the future growth or future mind share acquisition predicated on continued dislocation in the marketplace from your competitors? Yeah. Obviously, we've had some benefit from the dislocation in the marketplace because we've come through this period of time in a very strong fashion, and we're viewed as a strong counterparty. We're viewed as an attractive place to be, and we're viewed as an institution that does the same things before the run-up, during the run-up, and through the crisis as we've done before. I think that all stood us in pretty good state, and it's helped us build the business. Going forward, we're not counting on market dislocation. We believe that we're positioned, and we have the client opportunity to go forward and to grow with the market at greater than our current market share. As the market comes back, as we get a more stable market that has a positive outlook, we're really well-positioned. I think that's one of the great things, that it's a little frustrating to this point in time because when we embarked on this, we didn't expect the U.S. economy to be as tepid in its recovery as it's been, and we didn't anticipate the problems that are occurring in Europe. Go ahead. Any thoughts on when that more stable marketplace is going to happen? Beg your pardon? Any thoughts on when that more stable market is going to happen? Good try. No. Soon, I hope. Yeah. This is Rob Sedran from CIBC. Just to follow up, Tom, I saw on your slide a mid to low teens, and I thought I heard you say mid to high teens in terms of ROE. Yeah. We were switching back and forth between capital markets overall and the U.S. business. In the medium term in U.S. business, we should be mid to low teens is what I was low to mid-teens is what I was saying. I think the overall business will continue to perform in the high teens to 20% type of range going forward. It was really in answer to the question about the regulatory capital that I got to that number. In the U.S., once we get there, then we will see how far we can push it from the mid-teens up. Our medium-term objective is to get it to there. Hitting that medium-term objective, does it need those better markets, or are you comfortable that you can manage the business well, even in a bit of a stressed market? Well, we are making money. We are not making enough money. The desire is to push it. I think we can continue to make more money in what I would call these poor market conditions. But to get where we need to get to, we need some wind under our wings. Okay, you have the mic. It worked well, and then there is a question down in the front. Mario Mendonca, Canaccord Genuity. I want to go back to that 15% or so mid-teens ROE you are referring to. If you apply that against the capital that is currently allocated to the U.S. and maybe gross it up a little bit for Basel III, you are talking about a pretty big lift in your earnings, something from, say, 75 trailing, 70 million trailing, to potentially 300 million. Is that the sort of magnitude of improvement you envision in your earnings? Over what time period? Yeah, well, I think the opportunity is there to grow the earnings from where they are to CAD 200 million to CAD 300 million. I do not know, because I do not know what is going to happen in the market. But over a medium-term, 3 to 5 years. As things get going sooner, we should start to see that more quickly. We talk about where we are in our strategy. There is a bunch of things that we would like to do, but we are not going to do until we start to see the market come back. I think those will add to the earnings capability of the business. But that is the magnitude you are thinking about. Yeah. Something like CAD 75 million to potentially CAD 300 million over 3 to 5 years. That is right. Thank you. The CAD 300 million would be great, but I do think that the business is under-delivering on the bottom line right now, so we expect that we will get more over the near term, regardless of market conditions, and with some decent market conditions, much better. Thanks, Matt. Sumit Malhotra, Macquarie Capital Markets. Just to stay on the numbers for a second. In Bill's original comment, just want to make sure I have this clear. He talked about $1 billion in U.S. earnings coming out of P&C Banking and Wealth Management. Was it, we want Capital Markets to be 20% of that billion is the aspirational goal, so in that $200 million range, was that the right way to think about it? Sumit, I wish you could come and negotiate for me when we talk. No, I think the honest truth is, I think we would be 20% of a total. That would be a bigger number than CAD 1 billion. I think that, and I won't put words in Bill's mouth, but my understanding is that we think the retail businesses should be capable of delivering CAD 1 billion, and obviously Capital Markets would be incremental to that. The second part of the question, you had it on your slide. One thing we didn't hear too much about is corporate lending. Correct me if I'm wrong here, but if I think back for BMO, the loan book in the Capital Markets business was a good source of growth previously. We heard a lot about M&A from Perry. Has corporate lending been de-emphasized in the Capital Markets segment? Or why haven't we seen that book increase as much despite the M&A you've been doing? Is it bond market-focused instead? Let me answer that with a little bit of a history. If you recall, a couple of years ago, we took a big chunk of that loan book that was truly commercial in nature and transferred it into the P&C business. We were left with the remainder. We have a really focused emphasis on growing our loan book, but this is a tough market in terms of growth of loan book. We need the economy to get better so corporates start again to want to borrow and to invest in both capital and acquisitions and the like. We're poised. We have the ability to grow that. We're focused on it. The opportunities haven't been there to date. The other thing is that you're quite right to say the leverage finance market has been a preferable alternative when you look at it from an issuer perspective than the loan market has been. That always moves back and forth over time. I think you'll see us, because we're quite consciously, strategically going after this, growing that loan book significantly going forward. Peter Routledge, National Bank Financial. Just a question on the back office and your risk infrastructure. Are you doing it differently in this cycle? Can you talk about how you've organized the risk and control function in the U.S., given what we went through last decade? Do you have more people here relative to the front office? Fewer? Are you running it all out of Toronto, or do you have more control locally in New York or Chicago? Yeah. The answer to that generally is yes, but I wonder whether either Surjit and/or Jean-Michel, or maybe Surjit, you could talk in terms of the risk function, and Jean-Michel, you can talk about in terms of the operations back office focus. Yeah. The risk function has been strengthened overall in the bank after the last crisis. That's been a continuous process. With respect to the U.S., we do have more people on the ground now with expertise in all aspects and risk types, whether it's credit risk, market risk, operational risk. We are pretty comfortable with what we have going forward. Unless you have something specific on which I can elaborate. I want you to give you the comfort that the team on the ground and the team in Toronto and elsewhere are very strong. Ratio of front office to back office. Which would include the ops numbers. We would have to get that for you. I certainly don't have that. I don't have a ratio, but I can tell you that the number of people in the risk function have increased quite considerably, so that ratio is a lot better than it used to be. One of the areas that we've grown a lot is in operations risk, because that was an area that was somewhat not well-defined and new. On the markets risk side, we've also beefed up quite a bit. Jean-Michel, is there anything you want to add? Because I think that the answer would be very similar. Yeah, I think the answer is similar, but I think in addition to people, I think the processes and technology really do matter in this area, and I think that's where we've made significant investments in wholesale product operations. We've got a very strong leadership team that we've assembled. We have presence, obviously, in Toronto, but we've also augmented a number of key leaders in New York City and here in Chicago as well. Then we have specific programs to improve the end-to-end processes from the front office to the back office and the underlying platforms. Some of the platforms we're putting in, like Calypso, for example, are going to allow us to be much more nimble to respond to regulatory requirements. So the underlying processes, technology, in addition to the expertise that we have in the back office are really important, and we're investing in that. I can just come over with a front office add-on to that. Our experience from the front office is the quality and the level of support that we get from both of those functions is way up over the last number of years. We are really pleased with the support that we are getting. I am not sure if there are any more questions. We have a couple of minutes, but if there are not, one at the back. Mario, again. Just going back to that goal. In fact, the bank achieved that goal, the CAD 300 million plus in 2009, and that was a special year. It was a special year. I think it is special for all of us. Could you talk about, just remind us of what was really driving that? I suspect it was largely trading. What is really fallen off from that year? Yeah. We can come back. It was a year, if you recall, where there was an expectation that rates were going lower. Everyone positioned against that in terms of arbitraging the interest rate curve. We were very well positioned for that. We had a book that was of a size that we could capitalize on it. Generally, there was coming out of 2009 in our industry there was all of this liquidity, all of this ability to position yourselves and make money. I mean, it was a special year. I do not know, Luc, if you want to add anything in terms of either what was going on in either the derivative or the fixed income space. Sure. I mean, in 2009, the index arb business had a tremendous year for many of the institutions. It was situational to that specific dislocation that occurred in the market. If you were positioned to take advantage of it, you had a unique opportunity in the trading environment. That is really what drove a lot of that. Yeah. In the current environment, the index arb business, we shut down because it did not make sense for the prop business. In terms of that commonplace interest rate curve arbitrage, just no opportunity. I mean, I would like 2009 again, but I do not want 2008 preceding it. These things, you take the good with the bad, and that is how 2009 felt. If there are no more questions, thank you for giving us the opportunity to talk about this business. We are really excited about it. Thanks. Now we will turn things over to Gilles Ouellette, who will take us through the Private Client Group presentation. Thank you, Sharon, and good morning. I am here today with Terry Jenkins, who is the Head of our U.S. Private Bank, and Barry McInerney, who leads our U.S. and global asset management businesses. Terry has been with BMO for 11 years, having spent the last five and a half years here in the U.S. Before that, he ran the Canadian Private Bank, and very successfully at that. Barry joined us in 2009. Prior to that, Barry led the Americas Institutional Group for Russell Investments. Before that, he spent 19 years with Mercer in various senior leadership positions. The Private Client Group, or PCG, is a global business operating in both Canada and the U.S., as well as Europe, Asia, and now more recently, in the Middle East. Our business is organized into five main groups. BMO Nesbitt Burns, which is our full-service brokerage in Canada. BMO InvestorLine, which is our direct investing business in Canada. BMO Insurance, which includes both the credit insurance at BMO and the AIG business that we purchased in 2009. The fourth group is BMO Global Asset Management, which includes the institutional asset management, as well as the mutual fund business and the ETF complex. Finally, our private bank, which is domiciled in Canada, the U.S., and more recently in the Far East. Our two core U.S. businesses operate in the private banking and the asset management space, and they account for about 22% of PCG's overall revenue, and this is a number that we anticipate is going to increase over the next few years. Terry and Barry will talk about the specifics in the next few minutes. Before the M&I acquisition last year, we had made a lot of progress in the U.S. In both our private bank and asset management businesses, we've taken some aggressive action over the past few years to drive organic growth, which things included implementing a more proactive and disciplined sales practices. We made changes to our go-to-market model. We upgraded the talent with a number of new additions. We streamlined the operations and the asset management business. We introduced an integrated solutions-based sales approach that brought the global capabilities of BMO to the U.S. marketplace. This resulted in lower costs, higher revenues, and solid momentum. If you look at the slide, if you look at the financials on the left-hand side, in 2011, PCG delivered in the U.S., $427 million of revenue and $53 million of net income. That compares to a loss of $4 million as recently as three years ago. We've made lots of progress. If you look at the six-month results in 2012, the revenues are $356 million and $57 million of net income. In six months, we've already surpassed what we did in all of 2011. With M&I, our PCG U.S. business now delivers roughly $600 million in revenue and about $100 million in net income. On slide 39, you see that with our M&I acquisition, we've essentially doubled the size in the U.S. Our private bank locations have doubled. Our AUM has doubled. Our AUA has quadrupled. We now have three times the number of personal wealth accounts, and our high net worth business now is the 12th largest in the U.S., and our ultra high net worth business is one of the five largest business in the U.S. With this transaction, we also gained an institutional trust and retirement service business that specializes in defined contribution plans, and this is very complementary to our existing defined benefit plan. We also gained a mutual fund business and then a team of financial advisors. Turning to slide 41. The opportunity in the U.S. is huge, and we have three clear priorities. The priority number one is to leverage our acquisitions. In the last few slides, we've talked about what M&I means to BMO Harris in the U.S. But another recent acquisition that we are excited about is CTC Consulting, which was announced, I guess maybe about two months ago. This is a Portland-based independent investment consulting firm with very strong capabilities in the area of alternative investments. This is a capability that we can use in our asset management business, we can use in our high net worth business, and we can also use in our ultra high net worth business in both the U.S. and in Canada. The second priority is to drive the growth from existing client base, both the high net worth and the mass affluent. We have had a lot of success in recent years in Canada migrating high net worth clients from Personal & Commercial into the private banking world, where we provide our clients not only with banking but also investment management and trust in the estate. And this increases the potential revenue from the client by a factor of four or five. We are replicating this in the U.S. In the mass affluent space, we have 200,000 mass affluent clients, and mass affluent we define as investable assets between $250,000 and $1 million. We have 200,000 of these clients in our joint Harris and M&I client base with no existing investment relationship. We have had great success with our Premier Services program. Terry will speak about this in a few minutes, and Brad Chapin in the P&C segment will go into greater depth. The third priority is to maximize our wider distribution capabilities. In the past few years, we have had a lot of success distributing our products through our various internal channels. Now, with our greatly expanded distribution channels, we can distribute Harris products to the M&I channels. We can distribute M&I products to the Harris channels. A good example of this, for example, is our defined contribution capabilities, which we acquired with M&I. We can now market to our Harris commercial accounts. So we feel very good about the progress that we have made in the last few years, but we feel particularly good about the prospects for the next few years. So you can tell from our priorities, our way to a substantial increase in net income is to keep doing what we have been doing very successfully in the last few years, but with now a much larger client base. And with that, I will turn it over to Barry and Terry to talk about their businesses. And Barry, over to you. Great. Thank you, Gilles. Good morning, everyone. I will just grab the clicker there. Thank you. So BMO Global Asset Management has experienced transformational change over the last three years. This morning, I would like to focus on three areas: performance, distribution, and scale. I would like to share with you our expanded investment capabilities here in the U.S. and globally, our expanded distribution, both internally and externally, and our strategy to drive further scale and profitable growth over the coming years. Time. There we go. The U.S. marketplace remains very attractive to us, with deep pools of assets across the retail, institutional, and high net worth marketplaces. And we are focused on all three segments, delivering solutions with a strong commitment to innovation, service excellence, and superior investment performance for our clients. The slide here is not showing the high net worth area, and Terry will speak to that in a moment. We fully participate in the high net worth space by manufacturing an array of investment solutions for our partners at the BMO Private Bank. The retail market also is not displayed on this chart, but the $10 trillion retail marketplace in the U.S., we also fully participate in with our award-winning BMO Funds mutual fund platform, which was named earlier this year from Marshall Funds. What is displayed here is the, first of all, $25 trillion opportunity set for asset management firms in the U.S., which is around double that globally. You can see the defined benefit marketplace at $10 trillion. That still is a source of significant retirement assets for us to manage. It is a group that is aging, so we need to deliver both enhanced risk management capabilities in the form of liability-driven investing solutions, as well as a broader opportunity set for return enhancement. We do deliver on both those currently for a lot of our clients. In the DC marketplace in the U.S., clearly that is becoming the principal retirement vehicle going forward. Again, we can deliver there as well with our award-winning DC platform, which combines both our own in-house investment capabilities with best-in-class third-party investment products. So we feel we are well-positioned, as you can see on the bottom right, to meet the three most significant trends that we see in the investment industry, both here in the U.S. and globally. First off, investors here and globally, again, in all three segments, retail, surprisingly so, institutional, and high net worth, are moving towards multi-asset class solutions and strategies, and we are keenly focused in this area. Second of all, with respect to the U.S. institutional market, there is a strong trend towards investment outsourcing. In fact, it is expected that that market will double in size by 2015 to over $500 billion in assets. Again, we feel we are competitively positioned to compete very well in that space, combining our investment capabilities, our retirement and administration capabilities as well, and bundled in one solution. Finally, the alternative investment space. McKinsey and others have just released very recent research papers that indicate that the alternative investments arena has been the fastest-growing segment of the investment industry globally for the last five years and expect to continue a very precipitous growth. In fact, it has been estimated to be at a $6 trillion level. As Gilles mentioned, BMO has now acquired CTC. CTC has a very large research team, 100% dedicated to identifying best-in-class, third-party, boutique alternative investment managers globally in the areas of hedge funds, private equity, infrastructure, and real estate. So we intend to begin to wrap that capability into all of our solutions for our clients going forward. So we believe BMO Global Asset Management has the capabilities now and the distribution channels to compete effectively across the entire U.S. asset management industry. We have a talented investment team that is located around the globe. We have an award-winning mutual fund platform now. We are the recipients of the 2011 Lipper Awards, recognizing the best small company family of fixed income funds across America. Our BMO Retirement Services, our DC services, as Gilles mentioned, has been identified by Plan Sponsor as the number 1 DC platform in America for 5 years in a row in terms of service excellence. We have best-in-class institutional trust and custody services with over 1,600 institutional clients, representing over $70 billion in assets in safekeeping. We just have absolutely terrific internal channels and partnerships with BMO Capital Markets, the Private Bank, and BMO Harris Bank. They provide us with billions of CAD of sub-advisory and referral asset management opportunities on a yearly basis. Finally, looking at the global asset management business here in the U.S., we have over 2,500 institutional clients now. Clearly, that provides us with very strong cross-selling opportunities in meeting the industry trends that I spoke to on an earlier slide. No presentation would be complete without a global map. We got our global map, so I'm very pleased to report. Really, in all seriousness, we put global in our name, in BMO Global Asset Management, and we took that decision very seriously, and there's a reason for it. First of all, our investment professionals are global. They're located in 10 centers of excellence across 3 continents. Our clients are global. We have, again, a wide array of clients across North America, Europe, the Middle East, and Asia. In fact, we just opened up our office in Abu Dhabi in the Middle East in May, and our assets there for sovereign clients is already approaching CAD 1 billion in assets under management. We're very proud of that. We feel that bringing this all together as one firm, global capabilities, global clients, but bringing it together in one integrated solution is a key competitive advantage. Also, as we continue to drive further scale and profitable growth, again, leveraging our strong performance and leveraging our expanded distribution channels. Let me spend a few minutes on our value chain, manufacturing, packaging, and distribution. On the manufacturing aspect, BMO Global Asset Management has quickly emerged as a top 100 global investment manager with assets under management in excess of CAD 100 billion. Pensions & Investments has just released their rankings, and it's probably the definitive source of rankings of global asset managers in a variety of categories, and it's just in the public domain, obviously. Our current ranking now is up to 85 in terms of the 85th largest global manager in the world. That was based on a dated number from last year of CAD 90 billion. Our current AUM at the end of April is CAD 110 billion, so we expect to move up the rankings even further. Our rankings, when you look at worldwide institutional assets, we're ranked number 87, up from 149th last year. So we're really gaining some strong momentum and moving up the rankings. Again, we expect to continue to move up the rankings quickly this year. In just looking at the U.S. institutional assets, we're ranked number 74. Again, much bigger and much more scale than we had 12 to 24 months ago. So that's encouraging. When you look at our over 150 investment strategies that we currently manufacture here in the U.S. and globally, what we'd like to highlight this morning is what we believe is a very fast-growing and top quartile capability in global equities, in emerging market equities, and in frontier equities. They are, again, managed by our two international boutiques, Pyrford International out of London, and Lloyd George Management, who we acquired a year or so ago, out of Hong Kong, London, Mumbai, and Singapore. In terms of performance in the U.S., let's take our BMO Funds, our mutual fund platform. We have 23 mutual funds on our platform. Three we recently launched this year, more to come in the fall. 13 of those funds are rated by Morningstar. Nine of those 13 are rated either four- or five-star, and five-star being the highest rating for Morningstar. If you look at our BMO Funds that have at least a five-year track record monitored by Lipper, 88% of those assets are in the first quartile, 12% in the second quartile, none currently are in the third or fourth quartiles. We are very proud of that performance. Finally, award-winning. I mentioned Lipper Awards this year, multiple Lipper Awards we won in 2011, and the Plan Sponsor awards for our best-in-class DC platform. On the packaging front, we are promoting the power of the BMO brand worldwide through our operations in North America, Europe, Middle East, and Asia. Offering a global platform of solutions under the BMO brand that provides our clients with superior value across the entire risk-reward spectrum. We are also making a rather significant investment in a new leading-edge global portfolio accounting system, which will improve our clients' experience by providing comprehensive performance reporting with web delivery. Again, we have a global map, we have a global website now. It will be soon launched for you to peruse through. Do please look at our U.S. website, bmogam.com, and I think you will like that. It has been entirely restructured to reflect, again, our global capabilities and our expanded U.S. capabilities. In terms of distribution, we again, as I mentioned, we just have fantastic distribution opportunities both within and outside the bank, and we are going to continue to take advantage of those opportunities. We are offering our clients a solutions-based approach that meets their changing needs most effectively. In terms of our external sales force, we have greatly expanded that as well. We have doubled the size of our sales force focused on the external channels, with the addition, obviously, of the M&I sales professionals and additional hires we have made over the last 12 months. We feel we have clear direction for the U.S. asset management business. Just to repeat and reiterate, we are going to leverage sales opportunities through our internal channels. We are going to expand our capabilities even further with higher-yielding strategies. Our BMO Funds will be woven into all of our solutions going forward with our clients, again, in the retail, institutional, and high-net-worth spaces. We are going to distribute those BMO Funds onto third-party platforms to generate further scale and reach. We are going to continue to build out our additional sales force, focusing on the external channels, and we are going to improve our client experience by lowering our ongoing costs through the significant investment we are making with this SimCorp portfolio accounting system. Overall, we are feeling very confident that we compete effectively in the U.S. and through a solutions approach and through our expanded capabilities and through our strong performance. Over to Terry now to speak to you about the private bank. Great. Thanks, Barry. Some tremendous progress. Good morning, everyone, and thank you all for being here. Like our global asset management business, private wealth has undergone many very positive changes over the course of the last few years. I will spend my time with you today introducing you, number one, to our business, two, covering our approach to the markets, and I will highlight along the way what is behind the successes we are having in our business. Turning to the first slide, this really highlights why we like the wealth business in the U.S. Much like Barry's slide, this is a $30 trillion business growing at 8% compound year after year. We are in key wealth markets across the U.S., and we have a stronghold in the U.S. Midwest. A case in point, if you look at our combined private bank and retail network, we have approximately 53,000 high-net-worth households in that network. That represents 35% of all of the high-net-worth households in and around the Chicagoland area, so tremendous market share and opportunity for us there. We have competitive and we have unique wealth models in each segment that we compete in. As Gilles mentioned, we moved to a new model three years ago. It is really a combination of centralizing to reduce costs and a move to a more geographic delivery that is really focused on our client experience and our sales and our sales management disciplines. Across the top of the page, you can see what we bring to our clients centrally. Our advice in financial planning, which we spent a lot of time and energy building, our portfolio management, which is our investment management business, and our trust in our banking. What we have done, really, down the left side of the page is move to a more geographic approach where we brought the teams together under one leader. We have combined the teams, we have combined the P&L, and we have even moved to one bonus pool to really enhance how they work together and to build on that client experience in our sales efforts, which are two key drivers for this part of the business. It has worked extremely well for us. In 2010, we reduced costs in our business materially, and following that, in 2011, we increased our sales by 20%. You put those two together, and that is contributing to significant net income growth in our businesses. Throughout the process, our client retention has remained better than 95% across the board. We now have this model across our footprint. Here is a visual of our U.S. footprint and how it is expanding. You can see, again, our core strength in the Midwest, where we link closely with our personal and commercial partners, and where we are located also in other key wealth markets, such as Arizona and Florida, where our Canadian and our Midwest clients both vacation and retire. Overall, we are well-positioned across the country with 57 locations in 13 states. It is important to note that we run our wealth businesses in the U.S. based on three key segments. The ultra-high-net-worth segment for us, which is really an investable assets of $25 million and/or a net worth of $100 million; our high-net-worth segment, which is the area between $1 million and $25 million investable assets; and our mass affluent, which is $250,000 investable to $1 million. What I will do now is I will take you through each of those segments, how we go to market and some of the key areas we are doing. I'll start with the ultra-high-net worth. This is a space where we compete as a multifamily office under the brand Harris MyCFO. We have quality, and we have scale in this business, as you can see from our recognition and our awards. We focused a close partnership in this business with our commercial banking colleagues and our Capital Markets colleagues as a key strategy to grow. Our referrals in the last 12 months alone are up materially, and we're very pleased with the growth of these referrals. We're already a leader in this segment, and we continue to build. As Gilles and Barry commented on, our CTC acquisition helps our business in this segment materially because of their capability. It's something that they both alluded to we can leverage across our entire BMO Financial Group network because of their unique capabilities. Moving to the high-net-worth segment. This segment is growing for us and very profitable. It has solid productivity which, when you combine it with the solid sales growth that we've talked about, it has an excellent history of net income growth. We've accomplished this by focusing on the key drivers of the business. Number one, the integrated client experience that I spoke about. Number two, the strong sales and sales management disciplines that give us the top-line growth. Number three, the continued migration of clients from our partners in P&C into this model that allows us to provide those clients with a broader array of wealth management services. Also in this business, we've really focused and built it into our DNA, a really tight cost and expense control alignment that's really helped to our net income growth as well. Like ultra-high-net worth, this segment is also scaled, and with the addition of M&I, it adds significantly in all areas and gives us a lot of upside. Our mass affluent segment. I'll talk briefly about Premier Services for our mass affluent. As Gilles said, Brad Chapin will cover this in significantly more detail in just a few minutes. This is exciting for our mass affluent wealth business as this approach is unique in its client experience, and it's really the way that we will go to market in this segment in the U.S. The execution is really focused on the 200,000-plus mass affluent clients in the retail channel that we do not do wealth management business with. In a nutshell, it's focused on bringing a financial advisor and a banker together to create a joint client experience for the client. As you can see, early results are strong. If you go left to right on this page, the new premier teams, and there's more than 50 of them in place already, are closing 4.5 times more in investment management business than they were pre-pilot. New assets per financial advisor are up 47%, and what's particularly rewarding is 56% of those new assets are going into recurring fee-based products. Those are all key drivers of success in this segment, as I'm sure you know. More to come on premier from Brad in just a few minutes. I'll close with the headlines. We've built strong wealth businesses in the U.S. They're scaled. They are growing. Combined with our partnerships in P&C to leverage both the mass affluent and the high net worth and the accelerated growth and capabilities that M&I brings us, we have a bright future for wealth management in the U.S. Thank you. We will now turn it over to questions. Okay. We will take a few questions. Somebody say something. This looks like an analyst conference call. One question. Okay, Gabriel. No questions, I guess. Bold, risky acquisitions, what is your appetite for those? Oh, we like bold and risky. Jokes aside, but into that theme, I guess. Outside of the U.S., I guess, is kind of what I am sensing where you feel there is a bigger growth opportunity. Is there anything in your product suite that you are lacking now that you would like to fill in a non-organic basis? Yeah. Let me just say, we have an enormous opportunity here in the U.S. This is job one, make sure this is well-integrated. We are nearly there. We are going to be going on the same platform in the latter part of August. A lot of the synergies will be out by then. We feel very comfortable about that. The execution, we have talked about one of the reasons we feel very comfortable, and both Barry and Terry said the same thing, is that this is not a new program we are on. What we are going to be doing is delivering more of the same, and it is all about the execution. This is really job one. We are looking. There are opportunities, there will be opportunities, probably not in the next little while, but we have been active, very active. Probably in the last year, we have made, I think, probably four different announcements. We bought a small private bank based in Hong Kong and Singapore recently. CTC is another acquisition, and I think early part of the year, and I think it was in February, where we announced that we had bought a 20%, which is the maximum we can buy, of COFCO Trust in China. We are being active, but this opportunity here is that we are making sure that we are not distracted from this. We are kind of looking around, and we are looking not only internationally, as you mentioned, we are also looking here in the U.S. Yeah. There is a few assets for sale more on the manufacturing side, I think. Is that part of your vision to expand? Yeah. Although in the asset management space, we think we have filled most of the gaps. There are a couple other small gaps that we are looking at. Certainly, the way things are evolving in Europe, I think the opportunity to make acquisitions are not going to close next week. I think we have years of opportunities. We want to make sure we do the right ones. We need to drive the revenues and net income here with this M&I acquisition. This is an enormous opportunity. Certainly the best opportunity we have had in the last 10 years, and so we will make sure we execute well against this. Sumit Malhotra, Macquarie Capital Markets. The other part of P&C that you increased significantly in Canada a few years back is insurance. Where does that business fit into your U.S. strategy? Frankly, since you added it also has increased the volatility of the earnings stream of this segment. Is it a business that you want to grow outside of what you have right now? The operating results of the insurance company in the last three years have been very good. It has been masked by these major distortions obviously in interest rates. As I have had occasion to, it seems like every other quarter I mention something about the drop in interest rates and the impact it is having. With respect to insurance in the U.S., we have not been looking actively. We need to get this turmoil to settle down a little bit for us to get back into the space knowing that every other quarter we seem to be taking a bit of a hit. With rates being as low as they are, there is a limit to how much we are going to have to take going forward. It is a space that has been interesting. One of the reasons we did this is that this is very complementary to the wealth business that we have with both the private bank and Nesbitt Burns in Canada. We do not have exactly the same set of circumstances here in the U.S. We do not have a team of 1,400 investment advisors, for example, who are now looking at the wealth business very differently than we were doing four or five years ago. One of the big successes we have had with the AIG acquisition is that our investment advisors are now looking at their clients with a much more holistic view. When they are speaking to clients now, they lead with a financial plan, and out of this financial plan comes a need for investments, for banking trust and estates, and now insurance. That is where we see the huge potential, and that is where we have made some great progress. The circumstances are not really the same here in the U.S., but we will see. We are happy, as I said with the operating results that we have had. If the interest rates start calming down a little bit, or even better, start going up, and all of this money that we have given back quarterly, we are going to get back. You mentioned the hits because of interest rates. Given what has happened with long-term rates since the end of Q2 or since the end of April, reasonable to expect that we are going to see that again in the third quarter? I need help here. Where is the IR, legal? What can I say? Somebody say something. Pretty good. You have seen what has happened to the rates. You take from there. It's Tom Flynn. I think I was going to say basically what Gilles has seen. You've seen our sensitivity through time to movements of rates. We disclose the sensitivity, and you can track rates in the market. Thank you. Steve Theriault from Bank of America Merrill Lynch. Question for Barry. Barry, you spoke to nine of 13 of your funds being four or five-star rated from Morningstar. What does that represent in terms of percentage of assets? What's the mix equity versus fixed income? Maybe you can talk a little bit about the relative trends in terms of net flows. Sure. I might take that, again, in a different order, but if you look at our BMO Funds platform we have, again, from the Marshall Funds from M&I, it's approximately a $10 billion platform. We really have very aggressive growth expectations for that platform, again, all the distribution channels that I spoke to in terms of the mass affluence and the DC platform and the external channels. We've already seen a shift in the last year, a positive shift, we feel, in terms of a broadening out of the diversity of the asset flows and the revenue sources of that platform. As we speak today, we have more long assets than money market assets. That's the first time in the history of the Marshall Funds, now BMO Funds, that we could say that. The money market funds, obviously, has been an industry trend away from that for three, four years now for obvious reasons. We're committed to those funds. But clearly, we like to see a stronger trend, which we've seen towards longer assets, the U.S. fixed income, the U.S. equities, and the international and global equities. Point one. The flows have been actually nicely positive, ex the money market exodus over the last 12 months. What we've done is, again, we sell them as I say, single slices and pies. The pies are knitted into our solutions, our multi-asset class solutions, principally in the institutional space of target date funds and working with a partnership with Terry and Brad in the mass affluent space with our BMO multi-asset class products and solutions. I think what you'll see with our funds flows is what you'll see from the investor sentiment going forward. The investor sentiment in the U.S. continues to look for a broader opportunity set that typically translates into more equities type instruments outside of the U.S. to get more diversification, more return enhancement opportunities. On that BMO Funds, just those 12 short months, we have Lloyd George on the platform for emerging markets, Pyrford on the platform for international and global. We have a high yield fund that we launched. You'll probably start to see us launch products that mirror where the cheese is moving from the investor sentiment as we continue to globalize, we believe, the U.S. investor platform. I hope that answers your question. What is the split currently? Money market versus long-term? Right now, it is around, it probably is low 50s percent long and high 40s percent money market. It has tipped over now to over half on the long side, slightly, 2% or 3% on the long side, and the rest is money market. Back, Ray. Oh, thanks. Brad Smith, Stonecap Securities. Gilles, I was wondering if you could talk a little bit about the U.S. competitive pricing environment and maybe put it in perspective in terms of your current earned yields and your expectations for your return on your capital going forward, say, three to five years. On the pricing side, Brad, I might just pass it on to Terry because you've had some comments on this. Why don't you speak a little bit about the pricing? Yeah, I think we were talking a little bit about this earlier. The pricing is holding because I think the type of model we have, we've built it around advice, and we built it around planning. So when you work with a high net worth or a mass affluent client, you're focused on retirement, you're focused on their full picture. You're an advisor to that client. We found that our pricing has held up quite nicely because of those relationships with the clients. We've always tried to position ourself as a somewhat premium price in the market because of the client experience we deliver. So it's holding up nicely. Barry, you want to speak on pricing? In terms of our Yeah. Yeah. No, I think, again, same comments. In the U.S., we haven't really felt a lot of price pressures across our market segments. I think some of us have been around a little while where we went through that probably a decade or so ago. But now it's been more focused on the service quality and performance. As long as our performance holds up, the current pricing, no pressure points at this point in time is quite acceptable. Brad, I think you're also speaking about the return business. These businesses should be able to return in excess of 20%. That's what we're targeting. In mid-term, we're looking to get up to 15%, but we think we can get beyond 20%. We've got a great infrastructure. Now it's just about the revenues. That's what we're targeting. Just where are you at currently? You're at 15%? No, we're just, and Terry, I think you said just shy of 10%? Yeah, high single digits. You can double it. Yeah. Yeah. Well, thank you very much. We'll now take a short 15-minute break, and we'll return at about quarter to. Thank you. Thank you. Break. Welcome back, everyone. We'll now turn to Mark Furlong and his management team who will take us through the U.S. P&C business. Thank you. Thanks, Sharon. Great to be here with you this morning with our P&C U.S. leadership team to review with you our strategy. We have a lot to share with you. These are the points that we'll cover. We have a clear growth strategy focused on the customer. We have a strong, experienced leadership team. They have a deep understanding of all the markets we do business in, and they know how we want to compete and grow and take market share. They're also very focused on completing our systems conversion later this year and branding all of our branches to BMO Harris Bank. The team. To my left, my immediate left, is Chris McComish. Chris leads about half of our personal business and our consumer lending business. He's been with the bank since 2009. Before that, he spent 22 years with First Union, then Wachovia. Chris is on the boards of CBA and BAI, two of the more prominent U.S. banking industry boards. To his left, Brad Chapin. Brad has the other half of personal banking. Coincidentally, Brad joined Harris Bank in 1984, and after six years, moved to M&I, where he started in Milwaukee, spent 22 years, but ran a variety of businesses in Green Bay, Wisconsin, and then Minneapolis, Minnesota, before moving back to Milwaukee. And then finally, Dave Casper. Dave's been in the BMO U.S. organization for 33 years. After 13 years in capital markets, Dave assumed the responsibility to lead commercial banking in 2010. As you recall, it was mentioned earlier, we transferred $5.4 billion on the commercial loan portfolio and a smaller amount of deposits from capital markets into commercial banking, and that really formed the big base of commercial banking. Down in front is Anne Benscoter. Anne leads the headquarters function. Anne has over 30 years in banking. She began in Chicago in 1979. The longest stretch Anne spent was 16 years with M&I. The distinct advantage of this structure is Anne has been intensely focused on products, processes, and integration. Whereas the line of business leaders to my left, though attentive to integration matters, are primarily outwardly focused on frontline relationship managers, our customers, and prospecting for new business. This structure really works. I also want to introduce Terry Bulger. Terry is the Chief Risk Officer for BMO Financial Corp, which is our bank holding company in the U.S. He was appointed to this role in late 2009 and joined BMO in 2008. He has more than two decades in risk management. Steve Taylor is our Chief Financial Officer. Steve recently joined us in January of this year. Steve has two decades of experience in the industry. There are more complete bios in the handout materials. The slide here just gives you a good sense of what their primary responsibilities are. I will open it up this morning with an overview of our business, talk about the markets we compete in, and the key elements of our strategy for both the personal and commercial businesses. Then as the business line leaders speak, they'll go into more details, including some discussion about the mass affluent strategy. So on the revenue slide, really two pieces. Net interest income, we've experienced some decline, and this is really a result of planned rebalancing of the loan portfolio in line with our risk tolerances. Fee income is about 18% of total revenue for the U.S. P&C business. A third of it are deposit service charges, about a third of it are mortgage and commercial loan fees, and the other third is a variety of other fee income categories. Net income of $563 million reflects only about 10 months of M&I. As I mentioned, we're adjusting the loan portfolio consistent with our risk profile. In the near term, there's some impact, but we're growing the businesses, and the loan growth will be apparent in a few quarters. We've segregated about $3.3 billion of commercial loans, 80% of which are commercial real estate, and have designated these as run-off portfolios. Well, undoubtedly, they'll take seven to 10 years to run off. The bulk of those loans will run off in the next five years. We've segmented a similar amount on the personal side, or about 10% or so of that portfolio. That will also run off in the next 5-7 years, but really the heavier part is in the first 5 years or so. In both cases, the decision was based on these portfolios being non-strategic and having a higher loss content. Overall, to give you some color of the largest loan portfolios of where we expect to see growth in the next 12 months, from the C&I side, we would expect high single-digit growth. Commercial real estate, soon we'd expect to see single-digit growth. Residential loans, while we sell currently 65%-70% of loan production due to wider loan sale premiums, the portfolio is likely flat to down, at least in the near term. Let me remind you, our model is to manage the option risk. By selling the loan, we effectively remove the credit risk, but we retain the servicing. By retaining the servicing, then we maintain the relationship. Home equity loans will decline slowly until we see more stabilization in home prices. Finally, as to auto loans, we expect auto will continue to grow. From a productivity standpoint, overall in the last 12 months, our productivity has improved with an average of just over 59% during that period. We're slightly over that the second quarter, but we will improve as we add back office synergies post-integration, consolidate some branches, and maintain good cost discipline. In fact, reoccurring expenses the last three quarters are essentially flat, if not for the litigation accrual that we did in the first quarter. I think we really do have our focus on the expense side of the equation. On slide 64. We have some great Midwest markets, and as Bill mentioned, really an enviable footprint in the six states of the Midwest. We've strengthened our market positions with acquisitions the past 5 years, and today we rank number 3 across the six state footprint. In Chicago, we're number 2 in deposit market share. Milwaukee, from a market-based customer perspective, we're really a dominant number 1. Technically, we're a number 2 because the former number 2 in 2003 and 2011 moved $5 billion into a second-story branch of a building. Essentially, technically moved up into that role. I would tell you, if you look at the number of branches and the size of our business, we're clearly the dominant player. We have almost 590 branches in the Midwest. After branch consolidation, we'll be closer to 550. As you've probably seen in press releases recently, we'll consolidate six branches at the end of this month, 24 branches when we do our conversion in the fall, and the majority of those consolidations are in the Wisconsin market. This is simply a great data page for the markets where we have a branch presence, along with, in each case, we have a commercial banking presence and, of course, we have our wealth management businesses there as well. Bill opened up the morning with a discussion of the size of the GDP in these markets. What you can see on the second line really is the GDP in each one of the markets where we do business. The fourth line down is our high net worth households, and that's also a key segment for BMO. You heard about that when Terry spoke a few minutes ago, and you will hear more about that mass affluent strategy in a few minutes. I think what is important to note that in each case, the size of these markets creates sufficient opportunity for every one of our businesses to grow. Slide 66. The combination of Harris and M&I have a significant impact beyond simply adding the two organizations together, including some revenue opportunities and some cost savings. The combined organization has expanded distribution capabilities, greater concentration in retail investment services and small businesses, and new product capabilities in areas like lease financing and credit cards. Our teams are focused on completing the systems conversion onto one platform, and the end of that process is in sight. Having greater scale, expanded distribution capabilities and product lines, together with cost synergies and a stronger platform, will lead us to better financial performance. As an example, though it is not on the slide, in the past, when a banker at M&I had a customer that had international needs, the M&I banker necessarily went to a bank like Chase or Bank of America to try and help the customer fulfill those needs. Today at BMO, with a stronger product set, we can handle all of that business inside. Therefore, we do not put that relationship at risk anymore, and we deliver at least as good, if not in some cases, a better product to our customers. Promise not to have too many like this, but here is one more good data page, and I will just try and give you some perspective. Frankly, in your book, it might be a little bit easier to see it than on the slide. Chicago and the suburbs of Chicago are really at the top half of the slide. On the top left is Cook County, and another way to think of that is that is really the greater city of Chicago. It is the third-largest metropolitan area behind New York and Los Angeles in the U.S. In that area, BMO Harris Bank passed Bank of America in the city last year to become number two in deposit market share, and we expect to show additional good growth in that market this year. In the suburbs, we are a close number two and growing. Illinois is home to 32 Fortune 500 companies, which places it number four in the U.S. Chicago alone represents 27 of those 32 companies and would rank number five in the U.S. It is a very diverse customer base. Milwaukee is in the bottom left corner. As you can see, when you remove the $11 billion of deposits I mentioned earlier from the former number two bank, and we reduce about CAD 1 billion of funding, wholesale funding that we take out of the former M&I franchise that we allowed to run off just because of better pricing at BMO. Our franchise is about double our nearest competitor, both in numbers of branches and in deposit dollars. No one else is really a viable challenger in the Milwaukee market. The Milwaukee market represents 1.6 million people and has really changed quite a bit over the last 30 years. What was once a very automobile-dependent community is now very diversified from an employment perspective. Health and education represents 18%. Manufacturing represents 14%, and a strong medical center. In fact, if you look more broadly at the state of Wisconsin, it represents about 2% of the population, yet in the biotech industry, about 10% of all studies are performed there. The reason that is there are three very strong research centers. The University of Wisconsin in Madison has one. A city just north of Madison called Marshfield has the second one, and then the Medical College in Milwaukee is the third one. Milwaukee also has a very strong water-centric community, being on the Great Lakes, formed it three or four years ago. It is led by two companies, A.O. Smith, which if you live in the U.S., you would commonly see those, the hot water heaters and a variety of devices in your home. Another company called Badger Meter, which really measures water flow in a variety of places, both commercial as well as consumer, and they are both, of course, our BMO Harris Bank customers. While the U.S. has an unemployment rate of 8.2%, Milwaukee's unemployment rate is 6.8%, and Madison is a very low 4.7%. Madison is in the bottom right-hand corner. We're a strong number one market share. Just a couple of years ago, we were number two. Madison's the state capital, so government represents about 24% of the jobs. Education is about 12%. Madison's an interesting community in the Midwest. It's been a hub of high technology development with companies like Epic. Epic develops software for hospitals to electronically transfer data through hospitals and through networks that they're linked to. Another company called TomoTherapy, and they're a company that through laser technology identifies and eradicates cancer, but what's made their technology so good is that it leaves minimal tissue damage around the area where the cancer is. Of course, we bank both of those as well. Madison raises venture capital from all around the U.S. This next slide 68, this slide represents the four Midwestern markets where we're a smaller but still very strong competitor. The common characteristics are that with the exception of Kansas City, we're number four, number five in deposits, with the ability to move up in these rankings over time. We'll achieve growth organically as well as through fill-in acquisitions. We know the competitors very well because we see them in other markets, and all of these are large markets that are performing better in terms of unemployment than the national averages. In some cases, like Minneapolis, where we're the number three commercial bank behind US Bank and Wells Fargo, has provided a great opportunity for us as another solution for commercial customers that aren't satisfied with the services they get. At 5.1% unemployment, Minneapolis is growing again. Minneapolis is home to 19 of the Fortune 500 companies. In each one of these markets, we have a strong mix of local bankers that understand the companies that do business there and understand the markets very well. Slide 69. This slide demonstrates that in most cases, our share of deposits, which is on the right side, exceeds our share of branches, which is on the left side, which usually means our performance and cost structure is superior to that of our competitors. It's another way of saying we're getting our fair share of business in those markets. Our strategic approach in the far right column lays out what we plan to do to continue to build an efficient franchise. Milwaukee and Madison and suburban Chicago will most likely move around or relocate or close or consolidate branches, although we are still interested in growing all throughout the Chicago market. Downtown Chicago and Indianapolis, they will most likely grow via organic growth through de novo offices or small infill acquisitions. Minneapolis, St. Louis, and Kansas City, we need further acquisitions really to augment de novo growth to make those markets as efficient as we know we can. Of course, any acquisition would have to fit our financial and cultural profile. A short comment about the two markets that I did not go into so far, Arizona and Florida. Our Arizona business is doing well, given the economy, and has the scale to be a good market as economic conditions in and around Phoenix continue to improve. Our business in Florida is holding its own. Our P&C operations are working closely with our wealth management businesses to take advantage of the opportunity. Clearly, we do not have the scale in Florida that we do elsewhere, but our people are working hard, and we will address the strategy in Florida over time. At this point, it is not a distraction and really does not have a material effect on our business one way or the other. As we think about the headwinds we face, we have real strengths in all aspects of serving business customers, from the entrepreneurial, smaller businesses that we serve throughout our branches, to the larger, more complex commercial customers that we serve in our commercial line of business. We think this is a good place to be as the U.S. economy continues to strengthen on the back of what continues to be a business-led recovery. Our strong market position in Chicago and throughout Wisconsin means we can compete efficiently and continue to deepen relationships while improving customer experience. Like every other bank doing business in the United States, we too are faced with changing regulatory conditions. We will certainly have some additional changes to deal with as legislation is finalized. But overall, we are well prepared to respond to any regulatory reform. We like our position, especially in the Midwest, which is what we have discussed to a great extent so far. We have some clear goals in the United States. First is to reach $1 billion of earnings. Through a combination of increased earnings based on the current run rate in both our U.S. retail business units, combined with achieving our targeted synergies and benefiting from improved credit quality, we feel confident this goal can be attained in the near term. Our target to get there is three years. Clearly, the completion of the integration will allow many of our employees to focus on growth priorities, and that is important to us. We will continue to make productivity gains with the integration synergies, and we will continue to focus on the level of expenses relative to revenue growth opportunities. Our commercial banking position is strong, and we expect to grow and get even stronger. In most markets, we are in the top five of deposit share or very close with a very good chance to move up. With a strong base of business, we should be able to grow consistently at or above GDP. We expect our focus on delivering great service to customers will get a positive shot in the arm with the completion of the integration. As you can tell, we are very confident about where we stand today. You will hear from our leaders today about these priorities, though given the time, they are really going to focus on just the biggest ones. We have a great deal of opportunity almost anywhere you look in our business. Mass affluent, we have 240,000 households or about 20% of our customer base. These are households with $250,000 to $1 million in investable assets. Credit card penetration, M&I has a 16% penetration. Harris sold the business a few years ago. We just relaunched credit card sales into our branches just in the fall of 2011. Our branches have done incredibly well selling it. We expect to grow this business as we have our other businesses. We are also building capability to further penetrate the mortgage market, to bundle deposit products in a useful way for our customers, and to improve our sales management capabilities. You will hear from Dave Casper about commercial banking later in the segment, so I will let Dave tell you about the exciting actions he has underway and his growth plans. In each instance, we will measure customer experience and take steps to improve it where it needs to be improved. Finally, to leverage our scale and improve productivity, we are working closely with our counterparts in Canada to find technology, operational, and product development opportunities to reduce costs. Enough from me at this point. Let us move into the business lines and you will hear from the team. Mark, thank you, and good morning, everybody. I also want to thank you for being here with us today. I am going to do three things this morning. First, discuss who we are as a personal line of business. Then I will highlight how we differentiate ourselves in the marketplace, working to grow our customer relationships, acquire new customers, and take share. Third, I am going to give you some proof points on the progress we are seeing. As Mark highlighted, we have experienced very strong growth, significant growth over the past few years. Essentially, we have doubled the business since 2009. We currently have more than 2 million customers across retail and business banking. We generate over $1.5 billion in revenue, which is just over half of the P&C U.S. total. Today, we have over $26 billion of loans and $42 billion of deposits. This very deep deposit base gives us a great opportunity to cross-sell into our customer base, grow our loan market share, while also increasing the share of wallet in our investment management business. Our customer base has shown to be strong and very loyal as our attrition is quite low. Our customers skew towards the mass affluent, and this creates the share of wallet opportunities that I just mentioned and a great growth opportunity for us in the future. We built a very strong foundation and we are adding scale in key markets, segments, and products that will enable us to drive more sales and improve productivity, resulting in growth and improved financial performance. In addition, due to our North American scale, we are able to provide our customers with a full multi-channel experience built off the overall size and strength of BMO. Some details on our loan portfolio. Our loan portfolio is a portion of our business we believe we have opportunities to take share. In spite of the relative softness in business and consumer lending related to the slow economic recovery, we have been able to significantly grow our pipelines, and you will see more on that later. The portfolio is broken down into four big buckets. First, mortgage. Our mortgage share trails our deposit share, and we are currently targeting that gap. We recently announced that we are hiring an additional 100 mortgage loan officers and mortgage loan originators across our footprint. This will take place over the coming year, and we look to aggressively grow this business. While our mortgage originations have been strong as a result of the current refinance boom, we have also made strategic decisions to sell many of these mortgages, as Mark mentioned, off of our balance sheet while maintaining the servicing to minimize interest rate risk and credit risk while maintaining our customer relationships. Others may have elected to take a different approach, but we feel this is the best model for us. Business banking also represents a significant portfolio. We define this business as companies up to $20 million in revenues. Our pipelines in this segment have grown significantly due to the product suite we offer, our approach to customer experience, and the dedicated professionals and branch staff that we have in the markets. Indirect auto is also a large business for us. We operate in 17 states. It has continued to be high-performing throughout the current cycle and is a growing part of our portfolio. We believe we have more opportunities to further build this segment. Our home equity portfolio, while this has been a narrowing market, we are seeing improved production results due to an increased focus by our combined company. Cards, as Mark mentioned, you can see that our card business makes up a small portion of our overall portfolio, but I will discuss opportunities and early results there in a minute. We also have a portion of our loan portfolio which we consider non-strategic. These loans are primarily real estate secured loans in product types and in geographies that we are no longer originating. Overall, the key point here is we do see opportunities to grow our lending businesses and capitalize on the deposit share that we have to drive customer acquisition, deepen relationships, and drive greater revenue. This slide speaks to the major banks that we compete with in our markets. The key takeaway here is that we have a very strong distribution network, particularly in our home markets, and we are able to capitalize on the strength of BMO to invest in improved capabilities and acquire share. While we do not compete with everyone highlighted in all of our markets, they do represent the core of our competition. While each has their own strategic approach, we believe we can gain share everywhere, just as we have in Chicago, where, as Mark mentioned, this past year we moved into a second position in deposit share, passing Bank of America in the process. We believe our strong distribution and proactive customer experience approach is a competitive advantage for us. While we also compete with many smaller community banks, they really don't have the deep product depth, certainly don't have the capital that we have, nor the integrated solutions that we are able to provide to our customers. The slides are a little bit repetitive, so I'm not going to spend too much time other than to emphasize the fact that our leadership team has been together for over a year. While we've been operating under two brands in the marketplace, the BMO Harris brand here in Chicago primarily, and the M&I brand in the rest of the footprint, our leadership teams have been in place working together. We're anxious to get through the integration and operate externally as one organization, just as we are internally. I want to spend a few minutes on our net promoter scores and driving growth through customer experience. Our focus on driving growth through customer experience defines who we are and how we approach the business, both in Canada and here in the U.S. Our customer experience focus is not a separate program, but rather it's embedded in everything that we do. Being known as a customer experience leader will drive growth throughout our company. To build loyalty, we have built an extremely proactive approach towards customer experience. Everything we do is centered on proactively providing guidance, making things simpler for our customers, and giving them the information they need to make smart decisions. There is a big difference between being proactive in the marketplace versus simply reacting to our customers' questions and inquiries. Because many times, our customers may not have all the information or certainly may not even know the right questions to ask. Our approach builds loyalty, which we then proactively measure with our net promoter score process. This ongoing process for us and our net promoter score performance is part of everyone's compensation, and we measure NPS down to the branch level. I'll give you a couple stats. For those of you that were in Hinsdale yesterday, and you were in the Hinsdale main branch in our Oak Brook Terrace branch, you can see that our legacy Harris scores are a 42, which compare very favorably with certainly well ahead of the collection of large banks we compete with, and we're gaining on the community banks. Hinsdale, as a market, has been a top performer for our company, was number one in 2011, and is currently ranked towards the top. Our net promoter scores for Hinsdale in this quarter ended March 31 for the entire market were 53, compared with a 42 for legacy Harris overall, and our brand-new prototype branch in Oak Brook Terrace was a 58. So you can see very strong sales productivity, very strong financial performance, translating to very strong net promoter score performance, and that's why this is at the core of all that we do. We're building on this measurement platform throughout the enterprise. We're introducing it into the M&I footprint today, and Dave in the commercial bank is also very focused on it. Now I'd like to touch for a minute on some proof points around some growth in the momentum we're seeing in the business. I mentioned earlier that in spite of the softness in consumer and business lending related to the slow economic recovery, we have been able to significantly grow new business and add to our pipelines in many of our lending categories. To me, this helps answer the question, are we getting things right? Our mortgage business, as you can see, applications and fundings are both up significantly. In home equity, while on the slide it says we are up 18% linked quarter, that number would basically be double the production that we saw in the fall of 2011, where we stand today. If you were to talk to the teams in our underwriting shops, they would tell you this is the busiest that they have been in five years. Our credit card business, which we launched within the legacy Harris footprint, as Mark said, just this past fall, is a relatively small portion of our business. There is potential for good growth, leveraging our strong cards capability, and you can see that we have basically doubled the production there in the credit card business. We are also rolling out new and enhanced deposits and payments products, channel capabilities to further drive loyalty, build off the capability and capacity of our North American footprint. Our teams in business banking are also showing growth, as evidenced by our business banking pipeline, up double from where it was in Q1 2012. This is a segment that you can see that we are recognized externally for our excellence. Another tangible way that we are leveraging our North American scale was the launch of Helpful Steps, known in Canada as SmartSteps. This follows on our idea of build once, use many for all of our investments. We launched Helpful Steps for parents in October of this past year. Through March, we opened up 14,000 new savings accounts in the market, 25% of which were new households to the bank, and many of those customers would be defined as mass affluent customers. We have also recently launched Helpful Steps for small business, and we have similar expectations. To summarize, we are very focused on key segments in the market. We will continue to drive better sales productivity and improve the effectiveness of our channels, and we will further leverage BMO's size, strength, and product capabilities in all of our markets. All told, we have a significant opportunity to grow share. We have set high expectations for ourselves to deliver, and we are seeing progress. Thank you. Brad? Thanks, Chris. Well, I have kept a count. I am the 11th person this morning to welcome you to Chicago, and thank you for being here. No sincerity lost. Thank you for being here. Today, I am going to talk about the Premier Services work that we have been doing. Let me just get this right here. We are going to do this by covering four topics. We are going to talk about the clients themselves, who are currently in the bank. We are going to talk about what those clients' needs are, what they tell us. We are going to explain to you what our delivery model looks like to take care of those clients. We are going to talk to you about how we are measuring success and what we are seeing in the market. Let me give you a little bit of history first. This is an offer that we've actually been providing for our clients for the past several years. At the time of the acquisition, there were about 40 of these teams scattered throughout the regions. During 2010 and 2011, we looked at the program, we thought it was successful, but we thought we could make it even better. We spent some time and reengineered our strategy, identified the success areas, looked for additional opportunities to improve. We really looked at soup to nuts, how we hired, how we trained, how we managed the process, what the products were, how we developed products, customer experience, marketing. You name it, I think we looked at it. As a result of that reengineering of the process, what we now have as a strategy for Premier Services is the most promising strategy that we have in personal and wealth in the U.S. That is what we want to talk about today. Let me start by taking you to slide 84. I think you have heard some of these numbers before, but they are worth repeating because they are really important. 20% of our clients today in retail U.S. are in the mass affluent market. That is 240,000 clients. You recall, we define mass affluent as those households that have between $250,000 and $1 million of investable assets. If I put a little bit of a greater magnification on that, there are 36,000 of those households that actually do today keep $250,000 or more with us. There are about 5,600 of them that are actually in Premier. That means that there are approximately 200,000 of those mass affluent households that only do a small amount of their business with us and would not consider BMO Harris to be their lead financial services provider. In other words, we have an opportunity to significantly enhance those relationships and our profitability with a large number of mass affluent households that already do some business with us. That is the first point I want to make. We have a large number of mass affluent households who use us for something but wouldn't consider us to be their main bank. Bear with me for a second here. I am going to take you through a little bit of math. It is verbal. It is a little hard to do it verbally without paper. If you do the math on those 200,000 undersold households that we have been referring to, I want you to make two assumptions. First of all, assume that those households have, on average. Actually, just assume that those households have $400,000 of investable assets, so they are on the low end of the 250 to $1 million. The second assumption I want you to make is that we at BMO Harris only get 70% of their wallet share. Two conservative assumptions on that 200,000 client base. If you do the math on those assumptions, you will find that for every 1% of those clients that we convert to full customers, we will bring in $560 million of new assets for every 1%. That is why we view this as an incredible opportunity for the organization. We know a lot about these households because there have been a lot of studies that have been done on this segment. We know that advisor knowledge is the greatest single factor in determining whether or not they will bring more assets to you. That is why having an advisor as part of this team is critically important to us. We also know that they are looking for a dedicated point of contact. This is what they tell the researchers. Interestingly, they are less confident about the future than those households that have less than $250,000 of investable assets, or than those households that have more than $1 million of investable assets. We have a segment here that is less confident about the future. Finally, they tell us that they feel they are underserved by financial planning that they are receiving today. We have 200,000 of these households that are underserved. They tell us that they are not confident about the future, and they do not feel that the industry is serving them, and that is why Premier Services makes so much sense for us. At the center of our new strategy is a strong and uncompromising partnership that you have heard others talk about between PCG and P&C. That partnership is resulting in something completely different for the market. It is a relationship team made up of a premier banker and a financial advisor. Those two people work together and are now known as Premier Services. Together, that team works with our bankers and jointly identifies the Premier Services opportunities that we have in the portfolio. If they are working in the portfolio, they are talking to our personal bankers, our business bankers, our bank managers. They are also working through their own centers of influence and contacts in the markets. As a team, they will identify who those households are, and they will work together to collect as much information about that household as they can. They will together schedule a joint appointment. They will together prepare for the call, and they become the point of contact that that household was looking for. While the partnership between P&C and PCG is critical to the strategy, the joint meeting is really what differentiates us in the marketplace with the customer experience. That joint meeting is designed to build a conversation around the client's total financial needs. We talk about deposit and investment services. We talk about credit needs, credit card. We talk about insurance services and life events, and we talk about our technology capabilities to make their lives easier. Those joint meetings are designed to drive to a financial plan for that client that gives them confidence about the future. Our value proposition is simple. We provide an integrated financial experience. There are no handoffs here. We provide an integrated financial experience and personalized service with the Premier Services team as the point of contact that provide value to this relationship. Our value and our strategy, I think, are linked. They are enhanced by our households who skew mass affluent and by our capabilities. This is a great slide. This demonstrates what happens when we take a mass affluent client and move them from the retail bank into the Premier Services organization. What you can see is that average household balances increase by a factor of 5, and average brokerage penetration increases by a factor of 2.6. This does not happen easily. We actually work very closely with these Premier Services teams. They are held accountable for reaching weekly and monthly customer contact and production goals. As a team, we coach them on call preparation, on new client identification, and on relationship reviews. The partnership between P&C and PCG has really enabled us to integrate the training of these teams, the coaching, and the management. It has allowed us to line our incentives, our goals, and our tracking. We are now jointly developing process upgrades, new product development, to name a couple of things. The close partnership between P&C and PCG is one of our distinct advantages. Gilles and Mark are completely aligned with the strategy. Terry Jenkins and I are responsible for the execution. In other words, we have a very flat organization, and we all understand the value of the goal here. These are some results that we are going to share with you from our pilot market. Originally, we opened this up in Phoenix and Indianapolis seven months ago. In that seven-month time period, we have seen deposit and loan sales grow by 46%. Investment sales are up 4.5 times, and all other closed referrals are up 2.5 times. PCG and P&C are both benefiting from this partnership. We are actually ahead of our original targets by a nice factor. Because we are ahead, we have accelerated the rollout in the rest of the regions. Today, we are rolled out in every region except Chicago. We currently have about 50 of these teams in place. We expect to double that number within the next 12 months, and we expect to roll out in Chicago in early 2013. Chicago is a critical market for us. You have heard Terry talk about the amount of wealth that is in this market, and we want to be sure that Chicago is completely ready to go as we roll it out. The feedback that we are getting from our Premier Services clients is really terrific. I would love to read these all to you. I won't. Let me give you a couple of key themes. They value the partnership approach, they like the single point of contact, and they appreciate talking about and addressing all of their financial needs at once. I would like to wrap this up. As I have said, we have a strategic approach to managing our mass affluent households' financial services needs. The segment provides a significant revenue opportunity to BMO Harris Bank. It is one that we are strongly positioned to serve, given the markets that we are in and the strong reputation of trust and service that we enjoy with our clients. We have made Premier Services critically important to our success. It has huge visibility. We have flattened the organization structure, we have eliminated the silos between P&C and PCG, and we have full support from the top. Our pilot results and customer feedback, as you saw, are strong and ahead of our original projections. We are really excited about this strategy. We see that it is working. We are rolling it out as fast as we can, and that is why we are going to succeed here. With that, I am going to turn it over to Dave Casper to talk about commercial banking. Brad made a good point. I want to thank all the people in cyberspace that are listening on the webcast. You have been great and, like me, I have loved hearing from all of our colleagues. Great stories. I have great partners, but I am dying to talk about our commercial story, which is a good one, and it is just beginning. What I would like to do is talk about our commercial bank, how it is positioned for growth. We will walk through a little bit of our loan portfolio. We will break down our commercial segments, and we will talk a little bit about how we compete and how we win in what you all know is a very competitive environment. This slide is a lot like Chris's. As you look at the growth on the right-hand side, let us just level set a little bit, and we have talked about this, but let me remind everybody. In 2009, as we talked about in Tom Milroy's comments, we did really take a fresh look at how we were doing business with our commercial and our investment banking corporate capital markets clients in the U.S. We were looking really for the best alignment of the people and the capital to optimally serve both of these really important segments for us and to get each segment growing on the right path. We really, in the commercial side, we hoped to capitalize in 2009 on what we saw then as what we thought would be a business-led recovery. We also sought to take advantage of what was a bit of a disruption in the banking market, and we have done that. By consolidating the U.S. commercial banking business within our P&C unit, we wanted to, and we have focused on what is an extremely important sector for the entire BMO Financial Group. Following the acquisition of M&I, we have become the 12th largest commercial bank, measured by commercial loans in the U.S. We now represent about half of the P&C revenues and a significant portion of the U.S. income for BMO. It has been a very significant transformation over these last three years. It has been very significant for our commercial bankers that have been energized, and love the fact that we have these two businesses together. It has also been quite noticeable for our customers. Before leaving the slide, I would just call your attention to the market shares. We have a great market share in Wisconsin in commercial banking, largely due to the great efforts over a long period of time by the M&I bankers. As someone that has tried to compete against those bankers, we are delighted that they are now part of this team. In Chicago, we have a very good and growing number 3 spot, and in Minneapolis, we have a very solid number 3 spot. In each of our markets, including beyond these three, we have great plans over the next few years to significantly increase that market share. Let us take a look at our loan book, and as you look at it, I like to think of this really in three chunks. The first chunk is what we call our C&I book. That is about 75%, a little under $20 billion of loans. If you looked at this as a clock and you started at 12:00 and you went clockwise all the way around to 9:00 o'clock, you would see that we have in that entire C&I portfolio of about CAD 20 billion, a very good and diverse group of clients that cover a number of geographies as well as certain segments. The second portfolio, which is about CAD 3 billion, is our go-forward real estate business. This is a business we intend to rebuild and grow. Currently, it is about 12% of the book. Lastly is our runoff portfolio, which is also about CAD 3 billion. Mark's already commented on this book, so I will only add that as this runs off, and it will, we plan to replace it with core C&I business as well as commercial real estate to the extent the opportunities exist. Last point on this side. Our credit quality is quite strong. As you think about our diverse set of clients, I would say in the vast majority, these corporate clients, regardless of size, would have a year-over-year improvement in their earnings and in their capital structure. That is really good news. It helps our credit metrics. It reduces our loans a little bit as they pay off, but it really positions them quite well for the growth that we expect in the future. We have largely transitioned now in our books to the BMO risk practices, and the clients have been largely unaffected by that. This is a lot of detail on this slide. I really focus on the segments that we are in. On the left-hand side of the business, each one of these segments is run by one of our commercial management team, commercial managers. I would make three points. First, in this combination of M&I and Harris on the commercial side, the real winners in this combination have been our customers of both banks. Each bank's customers now have capabilities that they did not have before. The Harris customers now have a leasing capability that we never had in the U.S. We have, in essence, been giving that business, because many of our customers lease and have long-term equipment finances. We have been giving that business to others, which we will not do in the future. We also have, as Barry has mentioned, we have a great platform now for retirement services. Another business that the Harris clients had to go somewhere else if they were going to buy it, and now they have the Premier product. The M&I clients now have access to greater international capabilities. They have got additional sector expertise that were not available than in the past. They have got additional product expertise, and they have more capital. This is really the only concern that a lot of our M&I clients in the C&I had about M&I, and the day this was announced, that was wiped away. There are countless examples of relationship managers, both at the Harris and the M&I, now BMO Financial Group, bringing new products, new services, talking about new opportunities that neither one of these bankers could talk to their clients about before. There are great examples of how this will, over time, be great for our clients and already has been. The second point I would make speaks to our approach in this integration. All of you have seen the integrations in the past. There is not a long list of successful integrations, and we were going to make sure that ours was. From literally a week after these businesses were put together and announced, before that was actually closed, the commercial team sat together in rooms, and we built what we thought was a very cohesive and thoughtful strategy is how we were going to go to market as one team on day one. Each of our leaders of our specialty groups, like our food and consumer, our financial institution group, sat with the leaders of the geographic groups to figure out how they could grow the business, add to the business, augment the business that we already had over the near term. It was this commercial management team that gelled early. The view from this group was a sector expertise, specializing and footnoting our expertise in various sectors, coupled with a very strong local presence, which we now have, which Harris didn't have before. That would drive increased market share over time. We were fortunate on the commercial side that there really was very little overlap between the two groups in products or geography. That eliminated one of the big concerns that you have in any integration, that there was no fear on this management team or the people below them that they were going to lose their jobs because it was a great story for the commercial bank, that we were going to grow this business, and there was not the overlap. The commercial team also, you should know, that leads this group is a great combination, almost a 50/50 mix of M&I and Harris. It speaks to really the strong capabilities that both sides had. Lastly on this point, the strategy really from day one, and particularly in Wisconsin, where it was such a great market, was to make sure that we kept the bankers. That was critical. The M&I culture and how they managed their Wisconsin base was absolutely outstanding, and we needed to keep the bankers. If we kept the bankers, we were going to keep the customers. If we kept the bankers and the customers, we could then grow the business. We're well past point one and point two, and we are on to growing the business. The last point is you can see on the global treasury management, which covers all of the segments. It's a huge product for us. This is a business we're growing, and we have a lot more to do there. Our penetration rates are pretty good across our customer base, but with the additional capital that we're spending and with the importance of this product, and the platform that we now have together, our penetration rates can and will be better. This is, I think as all of you know, a very sticky product. When we lead transactions, we're able to get this. As a combined bank, we are leading a lot more transactions. Selling treasury management is important, and we make it a very important part of all of our relationship managers' compensation plan. By doing that, and we're doing more of it, we've already seen some good results here. Pulling this all together on page 96, our team, we think, is poised for growth and market share across all of our sectors and across our geographies. We're going to continue to expand nationally. We'll leverage our footprint with our new capabilities, and we will prudently, as I said before, rebuild our real estate. This would be a lot easier if we didn't have any of the people on this page. But we do. As you can see, we have a very wide variety of competitors, and most of them are all quite good. I'll say they're all quite good. When I look at this slide, I'm reminded that one of the competitors on this slide was with me in Wisconsin recently. As if you guys don't know this, he said to me, "Dave, you should know our bank is every bank's strategic plan in Wisconsin." I laughed, and I think I understood that, and I think our bankers understood that. But when pressing him, he also acknowledged that that strategic plan of theirs to get all of our customers is not working very well. It really isn't working very well for any of the banks because we've been able to keep our employees. When we keep our employees, we keep our customers. How are we trying to compete? Part of this we've talked about, but it is a combination of sector expertise, mid-market focus, and the local access to knowledge in the Midwest. I believe we've got the right strategy. When we compete against the smaller players, they don't have the sector expertise, but they do have a local presence, and they play that up as they should and as we would. But they don't have the balance sheet strength. They don't have the ability, particularly with the companies we're spending most of our time with, companies that are growing and want to grow. They don't have the sector expertise. They don't have the balance sheet, oftentimes, to grow with them to the next level. That's where we do our best. With the largest players, all of whom are good and all of whom have good market shares, we now stress the local knowledge because we have more feet on the ground in many more markets. But we also use our sector expertise here. Clients like both. They like having local presence. They like having people that know the sector, regardless of where they are. By putting these together and focusing on the mid-market, mid-cap size of companies, I think we do this a lot better than some of our bigger companies that have local presence or they have sector expertise. Sometimes they have both, but they don't take it down to the level of the market that we are. Lastly, particularly with some of our businesses in corporate finance and our leasing business and our dealer finance business, we do compete against some of the non-bank specialists, but we compete well against those. A good example would be how we've developed our dealer finance, our floor planning business, which 2 years ago we were not even in in the U.S. Frank's business had built a wonderful business in Canada, and we brought it down into North America, capitalizing on the knowledge we had before. We did it at a time when a lot of the captives were getting out of the business, and the weaker dealers had already gotten out. So we came in, fresh look, and we built that up. In every meeting that we have with our clients and with our prospective clients, we try to stress ideas and solutions that will grow the value of the client's enterprise over time. We stress the long-term nature of our commitment to this business, the fact that we have been in commercial banking for almost 200 years, and that impresses clients and that impresses prospects. Whether a client is 20 million and wants to grow to 200 or 500 million and wants to grow to 5 billion, our bankers, in conjunction with Perry's bankers on the investment banking side, are trained to put themselves in the customer's shoes and bring products to help that vision make happen. You are looking at our newly designed commercial website. This is a shameful promotion for this. This website shares industry data, has various insights from experts throughout the bank, and some great customer stories. You will see this on our website. You will also see it, I noticed a whole bunch of you have iPads, and you will see in the Wall Street Journal version of the iPad, you will see our digital ads. So I thank Doug for making that happen, and he also does that in our investment banking. They are great success stories. I would encourage you to check them out. It is a good thing to do on the plane or in anybody else's, other than our investor conference. There really are some good stories. My favorite is the Red Gold story, which tells the story of how the bank, in a tough time for the client, stayed with them. I do not want to cry, so I will let it go. The point is, though, we are getting our story out. We are getting it out all over the place to our customers and to our potential customers. The strategy is working. Our commercial loans are up over 16%. These are our C&I loans, over 16% on an annualized basis, and all of our markets have very good pipelines as we move into the tail end of this year. On the right-hand side of this slide, you will see our trademark red frame. This is the ad campaign that we really developed in 2009 as we were putting these businesses together. As you recall, it was a difficult time for the economy with our customers, and we were really trying to get people to recognize that there were going to be better days ahead, and we were going to be there for them. The idea was, if they could envision the growth, if they could see past what happened in 2008 and into 2009, if they could see past that, we could help make it happen. The message was really intended to let our corporate relationships and prospects know that we were invested in their success. It was not about us, it was about them and growing that business over time. The red frame has taken on a bit of a life of its own, internally with our teams as well. The plans our management team has put forth form the basis of this slide and really the framework of our strategy. The operating model that we discussed, the paths to growth that we outlined, and the redoubling of our efforts in treasury management all came from commercial banking, the management team, which was both banks together. They developed the plan, and they are now implementing it. In one of our early planning sessions early on, actually before the two banks got together, it was a fairly contentious meeting as we were talking about how we could go to market. Everybody had a view, and that is the beauty of our team. Everybody has got a plan, everybody has got a view. We were trying to pull it together, and one of our M&I colleagues was great, and I am getting to the story on the red frame. She stopped everybody. There was a little bit of a fight, and she held this thing up, and she said, "Well," she said, "god darn it. If our clients can see it, if we can see it, we can make this happen." I think that has been the battle cry of what we are trying to do with the entire commercial banking group. I am confident because our troops are confident that we can significantly grow our commercial banking business and be increasingly, an even more relevant part of the U.S. income for BMO. Thank you. We are going to turn it back to Mark to take questions, I believe. Yes. If you raise your hand, we have microphones on both sides like earlier. I guess there are questions unlike Gilles' section, huh? Hands were going up before the microphones got there. We were clearer than they were, though, right? Of course. Brad, I just want to take you back to the mental math. It is Rob Sedran from CIBC. Your mental math slide, where you went through, I think you said, assume an average of 400,000 assets, assume about 70% of that business you get. Curious to know, of the 36,000 that you already have, how those numbers would compare. Then in terms of sizing the market, you gave us the asset potential. Is there a rule of thumb we can use in terms of the revenue potential from that kind of a move? Well, the reason we chose to talk about the 200,000 clients is because that is where the bulk of the incremental profit exists, because those are the people that do the least amount with us right now. However, when we convert some of the 36,000, which we have been doing, to more full relationships, we clearly increase the profitability on those relationships. And we actually track profitability within the bank by even finer segments than we shared with you today. I can tell you that of the 200 and the 36, we have actually augmented about 2,500 of those relationships in this fiscal year. So there is profit in the 36,000, but it is not nearly the amount of incremental lift we get in the 200. And I am sorry, what was the second? I was curious, first, how the profile of the ones you already have compare to those average numbers that you threw out there to assume as the potential. Okay. So the average Premier banking client, so those are the ones that are now in Premier. They are being handled by a Premier team. There are about 5,600 of them, as I mentioned. They have over $500,000 of investments with us. We have about six core products that we have sold on average into each of those households, about nine cross-sells, about 39% penetration in card versus the 16 that Mark Furlong had talked about in the overall portfolio. I think about 47% of them are borrowers. We have got lots of statistics on that. So the bottom line is we are able to increase the relationship with them across the board. Let me give you another piece. The short answer to that is that separately for both PCG and for P&C, it is tens of millions of dollars in annual revenue. So it is a big target. Is Brad Chapin focused on it? You bet. How much are the associated costs, be it variable versus fixed? What's the incremental cost impact of onboarding some of these clients? How should we think about the expense side? I can take you through some of the numbers on the salaries, although I need to look at Tom and make sure that that's something that I can talk about here. Yeah. Pardon me? That's fine. Okay. The incremental cost of a Premier banker. Now, remember, I am going to put a caveat around this, that we are seven months into this new engineered program. So these numbers will change over time. The last 15 Premier bankers that we hired came to us at about a $60,000 base salary versus about a $40,000 base salary of a personal banker. That is actually down from where we used to be. That was part of the re-engineering. Because a big part of this, as we balance the new dollars coming in with the expenses going out, we wanted to make sure that we had that equation right. One of the changes that our re-engineering resulted in was to use more of our top-end personal bankers and retrain them or give them augmented training to make them Premier bankers as opposed to going out in the market and hiring at higher salary levels. So that is, I think, an example of what you are looking for. I mean, the magic to this, and it is just hard work, but the magic is when we hire financial advisors because we have customers that need expertise that cannot be provided for in the P&C group, the ramp-up is very quick because we have the customer already, so they have a comfort level with us. Instead of requiring Terry's team to go out and cold call all over the country or all over their markets, instead, they get to use the existing customer base we have and ramp up, and their breakeven period is cut dramatically, and that is the proof. We do not do it for that, though. What we do it is because we have a customer that has unfulfilled needs, and our job is to provide them the capability to fill those needs. It ties right into the customer experience piece that Chris talked about, which is trying to deliver great service to your customers. They do not go out to sell the service. They go out to explain the capabilities that we have, and the capabilities have sold themselves without them having to turn on the sales engine. Brad? Just one point on the wealth management side of that equation. Your revenues in the FA book for these assets are probably averaging about 1%, and your variable costs are in around 45%, which is kind of a nice margin there. If you go back to Brad's math, it gives you some of the upside in this initiative. Chris Bonafede from Hutchin Hill Capital. A couple of questions. It seems like there's a lot of momentum on the loan side. If you take out the runoff book, you've got C&I growing, you've got CRE that's turning around and starting to grow, auto's growing, and card looks like it's a pretty big opportunity in terms of growth off of the base that it's at. How should we think about that in terms of ability to grow net interest income and defend net interest margin as we go forward, given now we're seeing a potential acceleration in loan growth? Yeah. The perspective would be, I think in the near term, what we'll see is an acceleration of the runoff portfolio. I mean, it's been running off kind of in that 20%-25% range. I would say, I think that's not unreasonable to think about that for the next, I don't know, maybe 12 to 24 months. It's sort of a guess. That's the experience we've had. So that will wash out a little bit of the growth. But in the core portfolios, we'll continue to see pretty robust growth. Also, I wouldn't say that what's in the runoff portfolio is necessarily higher spread. There might be small pieces of it in there. So the pressure that you'll see on margin, I think, would be more related to the current environment we're in as opposed to any remixing of assets per se. I mean, just the pretty competitive environment as Dave spoke about on the commercial side, and probably see the same in the consumer side. So the pressure on the margin is more downward than upward, and we won't see that lift in the margin you get until we see upwardly rising rates and the ability to reprice deposits with a lag and the normal things you see in that environment. I think that just takes a little bit of time before we get there. Can we see net interest income growth given that you are getting loan growth and you are getting actually a decent amount of C&I growth in card and auto? You have also got on the fee side, mortgage is strong. You have absorbed all of Durbin. When I think about the expense side with the conversion coming, we should get some relief there. When I think about, there is actually the three pieces, I think. Fees are probably relatively good near term. Expenses are probably flatted down, and net interest income in dollars, it seems like it might have the potential to grow and offset the spread compression you might see because of the environment. I feel like we are in a plan review right now, and all the people that are in the plan review are critics are right here in the front row. They are actually colleagues, but they are critics in that review. Well, I think that is a fair way to look at it. I think in the near term, though, we will not grow the loan portfolio a lot in the near term. The core piece is going to grow. But the runoff portfolio is going to mask a little bit of that, and our job is to make sure we highlight it well enough so everybody understands what is going on. If you said bet the next quarter or two, which is not our bet, then I think it could be flat. If you said bet the next four to six quarters, I think you get a different answer. John Reucassel. Just a question for Mark. Couple of things. First, in the past when we have talked about tuck-in acquisitions, there has been this unrealistic view of what selling these smaller banks want to sell for and what people are willing to pay for. Has that gap narrowed at all, or is there still quite a big gap between when you look at target valuations? I am probably a little stale on that piece. What I know is there is interest. So we have had inbound interest. But I do not think that I can tell. I mean, everything in the market I see, you see. But I am probably a little stale on the pricing. We have been focused, of course, on the other issue, which is put the team together, integrate well. Evidence in the market would say that there is more rationalization right now for a seller because you know if you sell, you do not buy. That would tell me that except for the state of Texas, everybody else has a little more There is a little more reasonability in their expectation. Okay. Dave did touch on this, but one of your peers or competitors in Wisconsin has been quite vocal about their ability to pick up the best M&I bankers. It does not sound like that is the case. Could you talk about the competition for talent in Wisconsin, is it driving up some of the costs there? Have you been losing people that you did not want, or how does that all work? I think you said Dave, right? You want to talk about commercial bankers? Yeah, from the commercial side. It is two things. Number one, we have lost no one on the commercial side and the commercial management team. We have lost no one, of anybody that reports to anybody in those commercial banking management teams. We have lost a couple, and I mean a couple, of people that I would have liked to have kept. We did not have the spot, and we were not able to. There is no mass exodus. We talked about this, John. You do not have to go much farther than 100 yards from this building to look at what happens when a big bank buys another bank, and what you worry about. What I worried about on the commercial side was losing the people. There is a lot of case studies where you do lose a lot of people. We have not had that. As far as the competition, we made sure that our employees stayed, that it was not just pay. They wanted to make sure that they were still going to be able to service the clients they wanted to and do it the way they could. The clients wanted to make sure that the bankers that dealt with them in the past and understood them the best and knew how to support them in good times and bad stayed. Because of that, we have been extremely happy with our turnover. Does that answer your question? Just to add from the turnover perspective, we are at normalized levels, not getting there. We have been at normalized levels. As Bill mentioned when he opened up, we did an employee survey, so the whole organization, 82% participated in that. The results between the two former franchise, almost identical, every category, all the way through it. In fact, in areas of employee engagement, we went up in every category. That said, we have an integration, and that is in process. There will necessarily be some implication of that and some branches that will get consolidated. I am confident that you will see that peer or some other folks in the community say they have hired all these folks. Well, there was not a job for everybody in identical duplicative roles. As Dave said, we watch this really, really tightly, both in an incredible amount of detail, market by market, to make sure we understand it, both in Chris and Brad's business as well as in Dave's business. We have not seen the prolific numbers you see in the market. That said, these are good people. I hope when we get through the consolidation of operations, they too find good opportunities, and some will be at peers. Hi, Peter Routledge, National Bank Financial. Right here. I can just see you. Yeah, right. Any closer, you could hit me, right? Yeah. I forgot my tennis ball. Next time, I will bring it. It sounds like, particularly on the personal banking and the mass affluent side, you are trying to implement the M&I sales culture onto the Harris network. First question is, do I have that fair? Second question would be, how did customer penetration in the M&I network, how does it, or how did it differ from Harris? In M&I, particularly in the mass affluent, were you deeper penetrated into those customers on the M&I side as opposed to the Harris side? And just maybe talk about the differences as well in sales culture. You want me to take that? Would you like to Actually, there's some blend of both that's going on. But in actuality, it really, Peter, goes back to the slide on the net promoter score process and the customer experience process that we've built. That is actually the BMO and BMO Harris sales process, sales culture that's into the organization. We've certainly taken a lot from what we've learned with M&I. I touched on it. You see a customer base that looks very similar in both organizations, both skew towards the mass affluent. Fairly deep customer relationships, if you look at depository relationships with numbers of products, low attrition, and going into it with generally positive opinions of the provider. We're integrating our sales process into our customer experience work. The proactive outreach that we're doing on a daily, weekly, monthly basis between our employees in the branches or in the call centers or online, and our customer base is consistent throughout the organization. We've had our teams together, working on that. We have the same playbook that we're operating under. And for the most part, it's a combination of the legacy Harris and the BMO sales process, sales culture with some influence over M&I. Things like credit card penetration, Mark touched on it, would've been greater in the legacy M&I footprint. They had a card that they were selling. We had a white label relationship through MBNA than BofA, talking about we being the legacy Harris business. That's the type of product that was introduced into the fall. We went from a standing start of zero cards per month, per branch, and we're up to about 5 right now, and that would look very similar. You have the two organizations that have an equal size footprint, and that sales productivity would look very similar. On the mass affluent side? Yeah. Were you deeper penetrated into the M&I customer base than the Harris customer base? Actually, it's pretty interesting how similar the two organizations were. I think within a percent or two, both customer bases skewed in that direction. If you look at things like share of wallet and core product sales per relationship, you'll see very similar results. So it was ironic how closely these two organizations actually were from the mass affluent penetration. I would say, though, the Premier model was a legacy M&I model that we brought into the organization. The focus on the legacy Harris business, Terry touched on it earlier, was much more focused on the mass affluent, or I'm sorry, on the affluent market. So when you were in Hinsdale, we talked about the integrated branch work and the referrals of really affluent customers, those customers above $1 million, and the teaming that was going on there. We have a FA, financial advisor footprint in the branch network, but the teaming that was going on, it looked much more like a referral and a handoff versus a team that's working together that we're defining in the Premier model. So that model was very much brought to the company from the legacy M&I organization. The team worked to perfect that over the past, beginning really the spring or the summer of last year, and then rolled out, as we talked about, into the marketplace. Thanks. Charles Nadiganski for Nicolaus. We have heard from some of your U.S. peers over the past couple quarters that, this question is for Dave, by the way, that they have seen a hesitation on the part of some of their middle-market customers to follow through with their capital expenditures. It seems that they have the plans in place, but there is a hesitation. That said, my question is, are you hearing consistent commentary within your middle-market client base? Also, what are you seeing for utilization rates across your footprint? Charles, to the first question, yes, we definitely hear that. We have about 5,000 customers in the commercial market, and there is certainly some hesitation. I would say two things, less than there was a year ago, more confidence, and in many cases, it is actually more about investing in capital equipment as it is more people. I would say the pendulum is moving a little bit more to optimism, and it is going to and has already started to take hold in some equipment financing. Which, by the way, is actually pretty good for us because, as I mentioned before, we are building up our equipment finance lease business. The story of utilization rates is actually pretty similar across both M&I and Harris as we look at it. They have ticked up a little bit. The good news, bad news of that is we have been very successful in subsegments of getting ready for the future. We are increasing the denominator. We are bringing a lot of clients on where we are putting some commitments up, but they are not using any of it. That is offsetting some actual uptick in some of our commercial markets where we have gone from maybe 40%, 45%, up a little bit higher than that. Each one of our sectors is a little different because of how we go after the market. But in our core commercial market, I would say we have gone up a tick or two, despite putting more on the denominator. Does that help? Yeah, very helpful. If I could ask a slightly different question, and I apologize if you touched on this as well. I realize over the past quarters, FDIC acquisition, the flow of failures has slowed down. Are you still seeing opportunities for FDIC acquisitions? And I guess, are you even interested in that avenue? Yeah. We have an acquisition team that looks at them. You are right, there is not a lot out there now. They have a couple of weaker organizations in our markets that they have looked at, but you are right, the flow is very different. Not to be confused, priority number one, a first-class execution on the integration. But there is a group looking at them, just there is not as much out there now as there was a couple of years ago. I think that was the next question over here. Yeah. Gabriel Dechaine from Credit Suisse. Just on the earnings targets. So between the P&C Bank now and the wealth, you are bumping up against CAD 700 million of earnings. The synergy target that you are upping to CAD 400 million, about CAD 300 after tax, I guess. You are already pretty much at your CAD 1 billion target. Why is it a three-year target? Is it really a situation where the core earnings are staying flat because of the environment? What am I missing in the equation? The other one is on the branch expansion. I see that you have got 24 branches that are being consolidated. Is there a gross add number that you can throw out there in Minneapolis or wherever else? And I will stop there for now. That is all on your list? I was at a meeting on those same questions you had just the other day. Well, so all that CAD 400 million does not get allocated to me, although I think we are deserving of this. Our business team should get all of it. So earnings will be a little bit flat in the near term as we rebalance these portfolios, but you are right on. And the one piece you missed was credit quality, which is improving. So and I think that will be one of the benefits that we will see going forward. So while I do not think it is quite as easy as you said because we have that thing called taxes that we take out of some of that, and we have some, of course, we are ahead on our synergies. Some of that is coming through the run rate, a piece to us and a piece to other business units. You make it sound like it might be a year away, and that is what others would try and tell me, too. I think it is close to those 3 years. I will tell you, if we get some economic boost here, that would be a real positive to us. But I think we are probably in that 2 to 3-year time frame. Remember, we are only counting PCG and P&C U.S. And you saw the charts that Gilles had up there for his team and that we had up for our team. Then some of the synergies we rode through, some credit quality improvement, and we think we have a pretty fair shot at it. I hope we beat it. That is the goal, to beat it. Just on the synergy, maybe it is getting into Tom's closing remarks. You guys are ahead. We ought to let Tom do that when we get to the end. Are you taking questions? He will take questions at lunch. Okay. He said he would take questions then at lunch. Where is it coming from? Is it a pure gift to shareholders, or are you just upping it because the environment has gotten that much tougher? We can save that for lunch, I guess. You need me first question at lunch, huh, so you know what's going? Sure. Sure. I will address it now, though, just to deal with it while it is asked. We have upped the target to $400 million from the north of $300 million. I will talk about this in my remarks, but we are currently at about $180 million. So in Mark's defense, relative to growing earnings to the billion, a good portion of the 400 is already in the run rate, so we will need growth in the organic business to achieve that target. Of the $400 million, around 180 is related to lower employee costs. That is split between business costs and corporate function and back office costs, roughly equally, but the business side is a little bit higher. On what we call our technology and operations area, we have got costs that will from a savings perspective, come in at a number that is approaching $150 million, and that is split, very round numbers, evenly between IT, real estate, and procurement. FDIC costs are significantly lower today than they would have been for the predecessor organizations, given the higher credit quality of the combined company, and that is around $35 million in total. Then lastly, and as Mark alluded to, we do think that we will have a pickup in credit conditions over time, and we have currently got over 300 people in our workout groups in the U.S. and costs in excess of $100 million. Those costs will trail down over time as the credit portfolio improves and the workout portfolio shrink. We probably have time maybe for one more. He had a question. Oh, you had another one? On the branch expansion. Oh, yeah. Branches. Well, how many will we add? Yeah. Truly as many as we can successfully defend that we can get an adequate return. We do want to add them, but I think the slide up there said that kind of a mix when you get to the Minneapolis, Indianapolis, St. Louis, Kansas City, that there would need to be some acquisitions in there, too. That was completely the intent. Done over time that fit our profile. I think that most of those markets, if you're saying what's the number, most of those markets could double in branch size. There's that kind of capacity relative to competition, the top three in the market. I think the last question then we can talk. I think we have time for one more question, I think, and then Tom's going to come up and close it up. The final question. In Wisconsin, you have the largest share, obviously. There's two fairly sizable banks that are in trouble. One of them was in the market share slides, and I think it was in Madison. There's another one that I think it's a mutual holding company. They're decent sized banks. I'm just wondering what you think happens. What I think happens to those guys? Yeah. Well, my friend runs one of them, so he would shoot me if I said anything other than I hope they survive. I hope they do well and survive. I do not think I should say anything other than that, right? Thank you for your attention this morning. My job is to wrap up our U.S. Investor Day, and I will be fairly brief in doing that as I am standing between where we are now and lunch. Really what I want to communicate is the confidence, in summary, that we have in our U.S. business and the management teams that are executing our strategy. BMO is a truly North American bank, and as you have heard today, M&I has transformed our U.S. retail operations. It provides an excellent contiguous footprint in a large and attractive geography, and we see good opportunities to grow in a market that we know well. The combination adds complementary products in a number of areas across our businesses and establishes platforms for future growth in new markets. The slide shows examples of the benefits of the combination product capability and a distribution perspective. You heard about a number of these from the management teams today. From a financial perspective, synergies are coming in earlier and higher than planned at the time of the acquisition, and credit performance has also been better than planned. The transaction has been accretive in each of the last three quarters, also ahead of schedule. The platform that we have now is stronger than it was previously, given the scale resulting from the combination and the approach we took to the integration, which was based on taking the best products, people, and processes from each of the predecessor organization. As people talked about through the day, the strength of the combined organization has energized both the management teams and the employee base. An important driver of profitability will be synergies. Cost synergy realization is progressing well and is ahead of schedule. With the benefit of 18 months worth of work, we now expect to generate cost savings in excess of CAD 400 million. Focused execution has resulted in cost synergies to date of approximately CAD 180 million or 12% of M&I's pre-transaction announcement costs. We are tracking synergies in a number of ways, from a bottoms-up perspective through detailed tracking that we do through our integration management office. You can also look at cost by comparing the 2010 pre-transaction U.S. retail costs of M&I and the BMO U.S. business. If you look at those costs, they were running at an average quarterly rate in 2010 of about CAD 670 million. That number more recently has been closer to CAD 625 million, and that annualized gives you CAD 180 million. We are making good progress in key areas such as business model alignment, employee savings, systems and back office combinations, procurement and real estate, and branch closures. Cost savings are expected to accelerate in Q1 and then more fully in Q2 of fiscal 2013, following the systems conversion that will be completed in the fall of this year. In addition, we do expect revenue synergies to deliver some upside from this level. I will now end with some wrap-up comments from today's sessions. In BMO Capital Markets, we are a focused U.S. midcap investment bank, supported by a quality distribution platform. We have built out our distribution in the U.S., aligning capital and capabilities with client opportunity, focusing on strategic sectors. The strategy is taking hold. Our capabilities have driven growth in book-run transactions, improved client votes, and increased agency commission share. We are targeting, as Tom talked about, ROE in our U.S. capital market business in the mid to low teens. In Private Client Group, we are leveraging our acquisitions, driving growth from existing clients, and maximizing wider distribution capabilities. PCG is also working closely with P&C U.S. to deliver an integrated retail wealth offer to leverage opportunities from our attractive customer base and larger distribution network. In P&C U.S., we have a strong and experienced leadership team and operating platform. We are a leading commercial bank in the Midwest and are number 3 in our Midwest markets in deposit share. Our P&C U.S. strategy is focused on delivering growth and good returns, supported by a productivity ratio target in the mid to low 50s. Together, our U.S. businesses and strategies position us well to deliver good performance from a revenue, income, and return perspective in the U.S. We have attractive and leverageable platforms, clear growth strategies, and we are focused on execution. That concludes our presentation here today. We thank you all again very much for joining us, both in the room and on the line. In particular, we thank you for your engagement and questions. So thank you for your time. We will drop the call now.

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