Good afternoon and welcome to the BMO Financial Group’s first quarter 2009 conference call for March 3, 2009. Your host for today is Viki Lazaris, Senior Vice President of Investor Relations. Ms. Lazaris, please go ahead.

Good afternoon everyone. Thanks for joining us today. We’re in St. John’s, Newfoundland today where we held our AGM this morning. Presenting on the call today are Bill Downe, BMO’s CEO, Russel Robertson, our Chief Financial Officer, and Tom Flynn, our Chief Risk Officer. The following members of the management team are also here this afternoon to answer questions; Tom Milroy from BMO Capital Markets, Gilles Ouellette from the Private Client Group, Frank Techar, Head of P&C Canada, Ellen Costello from P&C US, and Barry Gilmour, Head of Technology and Operations. After the presentation, the management team will be available to answer questions from pre-qualified analysts. To give everyone an opportunity to participate we ask that you please ask one or two questions then re-queue. We’re planning to keep the call to one hour. At this time I would like to caution our listeners by stating the following on behalf of those speaking today. Forward-looking statements may be made during this call and there are risks that actual results could differ materially from forecasts, projections, or conclusions in the forward-looking statements. Certain material factors and assumptions were applied and drawing the conclusion or making the forecasts or projections in these forward-looking statements. You can find additional information about such material factors and assumptions and the material factors that could cause actual results to so differ in our caution regarding forward-looking statements set out forthwith in our news release from this morning or on the investor relations website. With that said, I can hand things over to Bill.

Thank you, Viki and good afternoon everyone. As noted, my comments may include forward-looking statements. For those of you who have already had the chance to review our first quarter numbers, you’ve doubtlessly recognized the contrasting elements in our results. Clearly the solid performance of our core businesses is not reflected in the Q1 bottom line and income number as reported. Our core businesses are performing very well in today’s recessionary economic environment. In particular, the Canadian retail business continues to make steady quarter-over-quarter progress in meeting its customer service objectives. This progress is driving market share growth and financial performance and is anticipated to be reflected throughout the remainder of the year. Lower revenues and corporate services coupled with increased PCLs primarily on U.S. real estate muted our first quarter results and the continued strength of our business. In fact, excluding the capital markets environment charges this quarter we earned $1.09 cash per share. This morning we declared a quarterly dividend of $0.70 unchanged from the first quarter. This represents an annual rate of $2.80 per share. Over 15 years to the end of fiscal 2008 our dividend grew at a compound annual rate of 11.3%. Some people have suggested that given tough economic times today that the rate of growth was perhaps too quick but few foresaw this economy and hindsight is always informative. Even acknowledging that however, the long-term target payout ratio is just that, long-term. Current earnings have been impacted by loan losses that have escalated to much higher levels, although still consistent with this stage of the credit cycle. At the same time there have been valuation changes related to the capital market’s environment. But we recognize the strength in our core businesses and their continuing progress. As I stated to our shareholders this morning,…

Thanks Bill, and good afternoon. As some of my comments are forward-looking, please note the caution regarding forward-looking statements on slide one. On slide three you can see the reported first quarter earnings were $225 million or $0.39 per share compared to $0.47 since last year. On a cash basis, earnings were $0.40 per share and our Tier One capital ratio remains strong at 10.21%. While core businesses perform well in this environment, credit costs remain elevated as expected at this point in the cycle, and lower revenues and corporate services significantly impacted reported results. On slide four, revenue at $2.4 billion was down 13% quarter over quarter. Strong performance in P&C Canada, and good under lying performance in BMO Capital Markets was offset by Capital Market's environment charges and lowered revenues and corporate services. Private client group results are also negatively impacted the market conditions reflected in reduced brokerage revenues and mutual fund fees due to weak equity markets. Year-over-year revenues increased 21% on a reported basis. P&C Canada revenues were up due to volume growth, improved margins, and higher revenue from cards and Moneris. The stronger U.S. dollar increased revenue by $87 million quarter-over-quarter and by $170 million year-over-year. Net interest income was $1.3 billion in Q1, up $117 million year-over-year driven by volume growth in all of the operating groups. Net interest income is down $82 million from Q4 as lower revenues and corporate services more than off set margin increases in P&C and Capital markets. The lower corporate revenues we reported this quarter were largely due to the negative carry and asset liability interest rate positions. There was an unprecedented drop in short term interest rates in the last few months as the U.S. and Canadian Central banks dropped their overnight interest rates. In general our…

Thanks Russ, and good afternoon. Before I begin, I draw your attention to the caution regarding forward looking statements. I'll start with the key risk messages for the quarter. First, as expected, given the weak economic conditions, loan losses remained elevated in the quarter. We expect this to continue with performance through 2009 and 2010, ultimately depending on how the economy and the housing market in the U.S. perform. Second, in general our credit portfolios are performing in a solid fashion considering the environment. We have continued to out perform in retail credit and Canadian commercial and corporate portfolios have held up well. As I will talk about later, the U.S. developer book is showing signs of strain given the state of the U.S. housing market. Lastly, capital market conditions led to some mark-to-market volatility in our results, as Russ has commented on. It is worth noting that our strategies for managing our off balance sheet vehicles remain on track. I’ll start now on slide three. We provide a breakdown of our loan portfolio as context for the discussion on credit conditions. Note that the U.S. loan book represents less than one-third of the most total loan portfolio. The graph on the right gives the mix of our Canadian loan book. Fifty-seven percent of assets in this portfolio are stable consumer loans. Of this total, 88% is secured. On the commercial side, 94% of advances are secured. Our U.S. portfolio mix is 40% consumer with the commercial and capital market exposures making up the larger portion. Slide four provides details of our U.S. loan book, which we have shown before. The U.S. consumer portfolio is fairly evenly spread across first mortgages, home equity and auto loans. Each of the portfolios here have experienced a pick-up in loss rates, given the…

(Operator Instructions) The first question is from Andre Hardy – RBC Capital Markets. Andre Hardy – RBC Capital Markets: The first one is probably for Tom. When I look at your specific allowances relative to gross impaireds, they’re at about 15%, and if we go back a few years, those used to be over 30. So what’s changed in the mix of impaired loans that give you so much confidence that you’ll recover about 85% of what you’ve lent?

I’ll give you a bit of a detailed answer to that question. The total allowance for credit loss is sitting at about 65% and that includes the general allowance. And as you know the total allowance ratio trends down during a recession and we’re seeing that again in this recession. Our specific coverage ratio would be around 15%. Our impaired loans, which total about $2.7 billion, include approximately $800 million of corporate and commercial loans where we’ve classified the accounts as impaired, but we do not expect to take a loss. And if you exclude those amounts, the specific coverage ratio would move up to about 20%. In addition, this quarter and last year we’ve taken significant write-offs against our impaired loans. This quarter we wrote off about $330 million against commercial and corporate loans and in '08 we wrote off $540 million. Write-offs have the effect of reducing the coverage ratio because you write off both the provision that you have and the impaired loan, and so they have a downward effect on the ratio. So I think you need to consider write-offs as you assess adequacy of this specific. And the last thing I’d say is that we have a very active and I think robust process for arriving at our specific provisions and the allowance. We have a bottom up process where the credit people that are involved in managing our impaired accounts estimate the amount of impairment that we have, and we take the impairment that comes up from that process. It’s a rigorous process. We run through all of the impaired commercial and corporate accounts, at least quarterly, and we’ve got good confidence in the teams of people that we have managing the process. So we’re comfortable that overall the allowance that we have is adequate for the impaired loan balance that we’ve got. Andre Hardy – RBC Capital Markets: Okay, and would it be fair to say that because more of it is real estate backed there’s more security and you should recover more? Is that part of the equation as well, or am I wrong there?

I don’t think that’s a significant portion of the equation. The majority of impaired loans that is real estate related would relate to our U.S. developer book. That book is secured, which is a factor. And we’ve also been active in writing down those balances, which would reduce the coverage ratio. Andre Hardy – RBC Capital Markets: Okay. And then I just have another one. You know treasury obviously got hurt by what happened in the interest rate environment. Capital markets had a big gain buy the sounds of it that related to interest rates. Were those truly independent events? Or what we’re seeing is immense distortion because of how you allocate interest expenses and revenues?

I would say they are, to a large degree, independent events in the capital market business. As has been said, we had a position on that benefitted from the positive slope of the yield curve. And in our corporate area we were negatively impacted by the very significant decline in short term interest rates during the quarter. To give you some numbers BA is declined by 175 basis points in the quarter, LIBOR by 350 basis points. And those declines really were precipitated by the fall-out from the Lehman collapse. That sharp decline in short term rates had a negative impact on corporate revenue given our asset liability book.

The next question is from Darko Mihelic – CIBC World Markets. Darko Mihelic – CIBC World Markets: My question relates to Apex and what it revolves around is the continually declining attachment point for tranche one and presumably the similar impact that that’s having on the attachment point for all of the other tranches. And so it seems as though it creates sort of a bit of a vicious circle that as you have down grades or default activity within one tranche it lowers the attachment point for all of the other tranches. So I guess what's the worst case scenario we can look at, how low can your attachment point go as a result of deterioration in say tranche one and two and further to that, now that you've actually drawn on the liquidity what would it take to actually have a provision against that liquidity line?

I'll take a crack at that, I think the first point to make is that the attachment points for the different tranches are independent. And so we have had a decrease in the attachment point on the weakest tranche as you pointed out but that does not cause any of the other attachment points to decrease, so they are independent events. The decrease in the quarter reflected deterioration in the portfolio. The way we mark this position to market, the marks are sensitive to the weakest tranches because that is where we have the most risk and so we had a fairly healthy write down this quarter mark down. And that reflected the reduction in the protection on the one tranche that we talked about. We have funded a portion of the senior funding facility and there's no expectation that we will have any provision against that facility given the first loss protection that's in place and also the other investors who hold senior notes in the vehicle. Darko Mihelic – CIBC World Markets: Okay so the attachment points that are dropping, those are all, they're independent of one another. Does the fact that perhaps does it have any impact on the detachment point?

It – there's no Darko Mihelic – CIBC World Markets: It should if you're

No the attachment points and the detachment points for each tranche are independent of the other tranches. There are some credits that are in both tranches, there isn’t a significant amount of overlap but there is some, so there can be a degree of correlation but they're independent. Darko Mihelic – CIBC World Markets: So at what stage does the attachment points, I mean for right now you're comfortable with this portfolio and one of the things you continually sight is the fact that you have such great subordination of risk or in other words a high attachment point. But at what level do you become concerned I mean if these attachment points keep dropping?

Well last quarter we provided additional detail on this vehicle and we've summarized it here. And we said that two of the tranches have lower levels of first loss protection and our exposure to those two tranches is $450 million and we have more risk against those two tranches. The other tranches have first loss protection in excess of 13.5% and we said then and we remain today very confident that we won't have realized losses on those other tranches. Dark Mihelic – CBC World Markets: So if those other tranches got to 10% would you start to worry?

Well higher is clearly better, but the level of corporate defaults that would need to occur given that the majority of this portfolio is an investment grade. In order for us to have realized losses on those tranches that have 13% plus first loss protection, would be beyond loss rates that have been experienced historically so fundamentally we're comfortable with the position that we've got there.

The next question is from Jim Bantis – Credit Suisse. Jim Bantis – Credit Suisse: When I look on slide six of Bill's opening comments we talk about 21% personal loan growth in the past year and a significant gain in market share of roughly 80 basis points. Maybe Tom or we can talk maybe about, sorry just trying to think of the risk associated with ramping up this loan growth ahead of the deterioration that we've seen in terms of unemployment, bankruptcy, maybe you can give us a little bit of background whether this was secured or unsecured, the nature of the lending in that regard?

I'm going to start because there is clearly an element of mix in the growth and Frank is going to take over and provide a little more commentary because we have looked carefully at the underlying risk and what we might see as emerging trends from there. But I think one of the things right off the bat that will turn out to have been to our benefit was exiting the mortgage broker channel in Canada when we did. Our experience in the U.S. was that experience losses were much higher in that channel, we had less visibility of the clients and you have less of the relationship. So I think that shift will be beneficial to us and at a very high level what we're seeing in terms of delinquencies in Canada while they're certainly a little bit higher than they have been, it's still they're still at levels, even on a relative basis within the Canadian market that we find encouraging and Frank I'll let you expand if you'd like.

Okay, Jim, just a couple of points, some of which have already been said the percentage of secured loans in our portfolio is 88% and that's been relatively consistent over time. So we're comfortable with the structure of the assets that we're putting on the books. The other thing I would just say is we have not changed our underwriting standards over this period of time. We have been as you know, focused quite heavily on changing the experience in our branches and changing the offers that we have with our customers and I think that has had an impact on the growth as well. But clearly the intent over time has been to change the mix in the balance sheet and as Bill mentioned our mortgage growth has not been strong, but we have improved the quality of the assets we believe over time, as a result the focusing on some of these other product categories. And I think you've seen the result of that in the increased margin that was up strongly in this particular quarter. So we like the quality of the assets that we have, and as Tom showed on one of his other slides we continue to be first in losses in all consumer lending categories and our expectation is that is not going to change as we go through any changes that might occur in the cycle. Jim Bantis – Credit Suisse: Got it. Thank you. So when I look at the growth number of 21% Frank, it includes the residential mortgages?

It does not, Jim. Jim Bantis – Credit Suisse: It does not okay then so when we talk about being 88% secured in terms of the portfolio mix, and this contributing to that ratio, this would include auto loans and other loans that got collateral against it?

That is correct. Jim Bantis – Credit Suisse: Got it, okay so I'll follow up a bit offline on it and maybe just and with respect to Tom. You highlighted a credit fraud event that impacted other banks as well as yourself. Could you quantify the amount that it relates to PCLs this quarter?

Yes the amount was around $25 million. Jim Bantis – Credit Suisse: And what was the nature of the breakdown in the risk management system that relates to this event?

It was not a breakdown of the risk management system, one of the parties that we do business with, was the victim of a fraud and banks that did business with this third party including ourselves had losses as a result. And so we were on the receiving end of an event that a company we do business with had. Jim Bantis – Credit Suisse: Understood. Difficult to manage against fraud.

The next question is from Michael Goldberg – Desjardins Securities. Michael Goldberg – Desjardins Securities: I'd like to get some comparable numbers with fourth quarter impact of asymmetric hedges. First of all, the hedge against your own loan portfolio and secondly, the impact of the lower value of your own issued debt. So the first one was $133 million in the fourth quarter and the second was $89 in the fourth quarter; what are the comparable numbers for the first quarter?

With respect to the CDFs, the gains of $133 million, the comparable number in Q1 is $48 million. The other one, the 89, I’m not familiar with; where would I Michael Goldberg – Desjardins Securities: That was the benefit to your earnings of your own issued liabilities going down in value, your HFT liabilities.

That was $22 million. Michael Goldberg – Desjardins Securities: And a more general question for Bill. Under what circumstances would you reduce the dividend?

Michael, I think I was pretty clear this morning in the comments that I made at the annual meeting, and the reason I was as full in my commentary as I know that many of the retail shareholders are so interested in the topic, and it comes back every time to the confidence we have in the core earnings of the bank, and unless we see a big downward change in the trajectory of the economy and that’s always a possibility, or something that related specifically to the bank, I think our comfort level is really defined by the core strength of the earnings. And really, I mean I think what you’re asking me is to draw a line and I think it would be a very difficult thing to do, in an environment such as the one we’re operating in. Michael Goldberg – Desjardins Securities: Okay and getting back to the $712 million of gross formations, how much of that would have been secured by hard assets?

I don’t have a precise number for you there, but the vast majority of our portfolio, as you know is secured, it would be in excess of 80%, and I have no reason to think that the ratio wouldn’t be similar for the assets that were captured by the formation number. Michael Goldberg – Desjardins Securities: Can you get back to me on that?

Sure.

The next question is from [Miriam Mandulka] – Genuity Capital Markets. [Miriam Mandulka] – Genuity Capital Markets: Quick question on Apex as well. I’m beginning to understand, Tom, from – and this is coming from the very good detail you’ve provided us that real, actual losses are still somewhat remote, but it seems to me that the accounting could still get a little bit messy here. And what I’m getting at is the $815 million, the note, the medium term note, the subordinated one, it’s written down by about 50% right now, so based on what happens to credit spreads, it’s conceivable that that note could, the whole $2.2 billion, could go away at some point, if credit spreads moved high enough. Could you help me understand what the consequences would be, and again I appreciate it’s more from an accounting perspective, but what the consequences would be to BMO, if that note went away given that BMO has the majority of the senior and it’s actually being drawn now?

I’ll try to address that. We are exposed to $815 million of the $2.2 billion of notes that the trust has issued and we’ve also got $1 billion senior funding facility. We take marks on the $815 million. As you know, the marks are a function of credit spreads and the performance of the underlying portfolio, and if credit spreads continue to widen and if there was migration in the portfolio, we would have additional marks, but there wouldn’t be any necessary consequence from that. We would take the marks that it was appropriate to take, we would reduce the carrying value of the notes, but nothing from an accounting perspective would – [Miriam Mandulka] – Genuity Capital Markets: Could I clarify? If that note is written to zero though, the $2.2 billion, then all that’s left is the senior and BMO has the majority of the senior, so does BMO at that point not have to consolidate the full exposure? Specifically, BMO’s entered into credit default swaps with the swap counter-parties and to offsetting swaps with Apex. Does that entire structure then essentially make it onto BMO’s balance sheet, when you’re just left with the senior notes?

I guess a couple of things. The first would be that we wouldn’t expect the notes to go to zero. If they did go to zero, which would be hard to imagine [Miriam Mandulka] – Genuity Capital Markets: But they’re down by 50%, Tom.

Yes. If they did go to zero, we would not consolidate the vehicle because we don’t have the majority of the expected loss because we only hold about 37% of the $2.2 billion in notes that Apex has issued. [Miriam Mandulka] – Genuity Capital Markets: But that – sorry, the reason I’m struggling with this is that we’ve just assumed that the $2.2 billion is written off to zero, so all that’s left is the senior and BMO has the majority of the senior, so I’m not sure why you would refer to the $2.2 billion, in explaining why this wouldn’t be consolidated if the $2.2 billion has just been written off.

If we were taking mark-to-market charges and wrote it down, we would just write down the notes. The accounting is based on the expected realized credit losses, and as we’ve said we don’t expect the realized credit losses to consume the amount of notes that have been issued by Apex. [Miriam Mandulka] – Genuity Capital Markets: Just sort of a different question. On the PCLs, there’s the increase you’ve shown us, there was, again, very good disclosure there on the presentation where you show the increase in the PCLs, they seem to be tracking that 30 to 89 day bucket that – and, again, this is not something that you provide yourself, more FDIC – the FDIC provides this disclosure, that 30 to 89 day bucket in the U.S. is moving fairly quickly and I guess what I’m getting at is to what extent can we look at that 30 to 89 day bucket which is, I think up to almost $800 million now, is that a decent trend we can look at to gauge how PCLs will emerge in subsequent quarters or does it sort of go into that bucket then come out so it really doesn’t play much of a roll?

I think you’d have to look at the relationship over time between that bucket and the actual, specific provisions that we’re taking, and the two would for sure be correlated, but there’s not a direct drive relationship and some of the loans that move into a delinquent status would pay up and go back to a regular performing loan, so I’d say there’s a correlation, but not a hard driving relationship. [Miriam Mandulka] – Genuity Capital Markets: ’:

Yes, the slope would not be one, and on page six of the slides that I used, you can see that our consumer provisions were actually down a little bit this quarter compared to Q4 for the U.S. business, and so I think it’s a fine thing to watch, it will give you a sense of what’s going on in the portfolio and over time, there would be a correlation, but it wouldn’t be approaching one at all. [Miriam Mandulka] – Genuity Capital Markets: So consumer was down but commercial was up by, what three times; it was about three times higher? That’s the one that’s sort of driving that bucket is what I’m getting at.

Okay, I thought it was a retail bucket that you were referring to. [Miriam Mandulka] – Genuity Capital Markets: No, it’s a commercial bucket.

My comments related to there being a correlation but not a driving connection would remain the case. The bulk of that big increase that we had in the commercial business in the U.S. was tied to the developer portfolio and there we’ve got the portfolio being impacted by the state of the housing market and during the quarter, we did a lot of work on managing loans that were either impaired or in need of attention. And that work, I think, resulted in a level of specifics for that category that is higher than what we expect on our run rate basis for the balance of the year.

The next question is from Robert Sedran – National Bank Financial Robert Sedran – National Bank Financial: Bill, I just wanted to touch on the issue of capital allocation. You mentioned the benefit of hindsight, when I look at the target payout ratio range I know you're above it now, but when earnings growth resumes and let's assume that the world does play out as you're expecting and the payout ratio starts to come down, are you still comfortable that 45 to 55 is an appropriate range for a cyclical industry? Or are you likely to favor something in the 35 to 45 range once the earnings are there and allocate more either to buybacks or acquisitions or something else going forward? You think that 45 to 55 is still the right number?

Rob, that's such a hypothetical. The range was established at a time when you looked at acquisition values, we were parsing through acquisition candidates going right to the final round and the value gap we saw in so many cases was just too great and the capital of the bank was starting to build faster than we saw reinvestment opportunities. So I think it would depend on the environment and the values that could be realized. I think – once again this is a hypothetical, but if you were in a hypothetical situation where earnings came back to higher levels, we felt they were good acquisition targets, I think we'd make it clear to the shareholders of our intention to make a change at that time and then operate within it.

The next question is from Brad Smith – Blackmont Capital. Brad Smith – Blackmont Capital: My question relates to the financial institution's exposures that you have. I noted in the annual report when you published it that you had about $24 billion worth of exposures there and I see again reference to your exposures in your note to shareholders of $18 billion. I was just wondering if I could get a little bit of a breakdown on the $23.8 billion of financial institution exposure in your commercial corporate book, in terms of bank versus non-bank or any other insight that you can provide. It just seems that it's a rather large amount relative to the overall book and so I just wanted to get some clarification. It's also growing quite rapidly I guess is the thing that has attracted me to that.

Brad, we have provided a breakout on that in the past and Tom has a chart that he can refer to and just give you a little sense of it. Brad Smith – Blackmont Capital: Okay great, thanks.

A couple of points; the first that I would make is that the funding that we are providing to the SIVs included in the financial institutions bucket as is position that we have in Apex. So if you take those two things out, the total exposure goes from the $24 $25 billion number down to about $17. And almost all of the growth that occurred year-over-year relates to funding the SIVs and to Apex. So I'll speak off of sort of the reduced $16 $17 billion number, within that I would say number one, that the portfolio is very highly diversified across both sectors and individual names. We don't have any individual names in excess of $400 million and only have two or three that would be in excess of $300 million. Banks would represent around $3 to $4 billion of that, we're well diversified. Eastern European banks have been topical recently and our non-trade related exposure to Eastern European banks would be under $150 million and our total including trade finance where we're secured would be under $400 million so we don't have big exposures there. We do include our exposures to prime brokerage and hedge fund in this category. They are very small in aggregate, they're under $1 billion and we've not had any issues with those portfolios over the last year and they're managed on what we think is a pretty conservative basis and I think I'd leave it at that. It's a large portfolio but it is highly diversified across industries and individual names. Brad Smith – Blackmont Capital: Okay and I noted that there was – I'm not sure if you provide this in your quarterly or not, but can you give us any color on the impaireds related to that line item?

The impaireds include just a couple of items from memory, we had last year an exposure to a company that was in the business of buying distressed mortgages, and that was classified financial institutions because a bit of an investment company. That amount is down to about $140 million today, 1-4-0 and then we had one small bank exposure that was about $40 million that we put into impaired a quarter or two ago.

Thank you there are no further questions.

Okay, since we've gotten through the questions before I turn it back to Viki, I really don't have closing comments that I'd like to make today other than to say I know you have had a full day with two banks releasing and there's been also quite a bit of commentary through the course of the annual meeting. But please if you have follow ups we'll be around tomorrow and you can circle back there. As I reflect on where we stand and really the – what has transpired over the last 24 months, I take enormous confidence from the strength of the capital base of the bank, the level of liquidity, the flexibility that we have to deal with opportunities and challenges in 2009, and take enormous confidence from the fundamentals of the core operating businesses and with that Viki, I'll turn it over to you to close.

Thank you very much everyone for joining us this afternoon. And if you have any further questions please call the IR team, we'll be around. Thanks a lot have a great day.

Thank you, the conference has now ended. Please disconnect your lines at this time and thank you for your participation.