Please be advised that this conference call is being recorded. Good afternoon and welcome to the BMO Financial Group's Q2 2015 Earnings Release and Conference Call for May 27, 2015. Your host for today is Ms. Sharon Haward-Laird, Head of Corporate Communications and Investor Relations. Ms. Haward-Laird, please go ahead.

Thank you very much. Good afternoon, everyone and thanks you for joining us today. Our agenda for today's investor presentation is as follows. We will begin the call with remarks from Bill Downe, BMO's CEO, followed by presentations from Tom Flynn, the Bank's Chief Financial Officer, and Surjit Rajpal, our Chief Risk Officer. After their presentations, we will have a short question-and-answer period, where we will take questions from pre-qualified analysts. To give everyone an opportunity to participate, please keep it to one question and then re-queue. Frank Techar, Chief Operating Officer, Cam Fowler from Canadian P&C, Mark Furlong from U.S. P&C, Darryl White from BMO Capital Markets and Gilles Ouellette from Wealth Management, are with us this afternoon to take questions. Dave Casper, who will be President and CEO of BMO Harris Bank, and Group Head Commercial Banking, effective June 1, is also with us and will speak to U.S. P&C results starting next quarter. On behalf of those speaking today, I note that forward-looking statements may be made during this call, actual results could differ materially from forecasts, projections or conclusions in these statements. I would also like to remind listeners that the Bank uses non-GAAP financial measures to arrive at adjusted results to assess and measure performance by business and the overall Bank. Management assesses performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Bill and Tom will be referring to adjusted results in their remarks, unless otherwise noted. Additional information on adjusted items, the Bank's reported results and factors and assumptions related to forward-looking information can be found in our Annual Report and our second quarter report to shareholders. With that said, I will hand things over to Bill.

Thank you, Sharon. Good afternoon to everyone joining us on the call today. BMO delivered good results in the second quarter with net income up $1.1 billion, up 5% from last year and 10% from the first quarter. Our operating groups performed well with good year-over-year net income growth in Wealth Management and in our combined Personal and Commercial Banking business. Capital markets results were significantly higher than in the prior period. Tom is going to take you through the financial results and Surjit will provide more detail about credit, but I wanted to highlight a few key items from quarter. BMO's capital position is strong with a common equity Tier 1 ratio of 10.2%. We bought back 3 million shares in the quarter returning $1.5 billion of capital to shareholders in the first half of the year. We also announced a $0.02 increase in our quarterly dividend to $0.82 per common share, up 5% since last year. Credit performance continued to be good with provisions at 20 basis points, in line with the prior quarter and the prior year. As I said last quarter, we are keeping a close check on expense growth. We took a charge this quarter of $106 million after-tax which will result in an annual run rate expense savings of about $100 million. With our advantaged business mix, our diversified North American footprint and our clear and consistent focus on customer experience, we also expect revenue growth to pickup over the remainder of the year. Turning briefly to the operating groups, our combined personal and commercial banking earnings were $706 million, up 8% from last year. Canadian, personal and commercial banking reported net income of $487 million as higher revenues were offset by increased expenses and loan loss provisions. We have a number of significant…

Thanks, Bill, and good afternoon everyone. I will start on Slide #9. Q2 EPS of $1.71 and net income of $1.1 billion were both up 5% from last year. As Bill said, underlying business results for the quarter were good, reflecting the benefits of our diversified business model. Adjusting items this quarter included charge of $106 million after-tax primarily related to restructuring, which will drive operating efficiencies. Adjusting items are shown on Slide 26. Net revenue was $4.5 billion, up 11%, including a 3% benefit from a stronger U.S. dollar. The increase was driven by growth in wealth management Canadian P&C and BMO Capital Markets. Net interest income was up 2% year-over-year, due to the impact of the stronger U.S. dollar and volume growth, partially offset by net interest margin and lower revenue and corporate, which was largely from purchased performing loans. The quarter-over-quarter decline reflects the impact of three fewer days in the current quarter. On a net revenue basis, non-interest revenue was up 21% from last year, primarily due to higher mutual fund and investment management and custodial fees in part due to the acquisition of F&C as well as higher trading and insurance revenue. Non-interest revenue was up 14% from the prior quarter, primarily due to higher trading and insurance revenue. Q2 expenses were up 13% from the prior year or 5% excluding the impact of the stronger U.S. dollar and the acquisition of F&C. Expenses were down 1% from Q1 or down 3% excluding the impact of the stronger U.S. dollar due to $87 million of stock-based compensation for employees eligible to retire expensed in Q1 and three fewer days in the current quarter. The effective tax rate of 19.8% was up from the prior year and Q1, primarily due to lower tax-exempt income. The rate…

Thank you, Tom, and good afternoon everyone. Starting on Slide 17, Specific PCLs were $161 million, flat quarter-over-quarter or 20 basis points. In Canada, commercial losses were stable while consumer losses increased to $114 million and are in line with recent results. In the U.S. both, consumer and commercial losses were lower, reflecting an improved economic environment. The PCL recovery in corporate services decreased by $14 million mainly as a result of the wind down of the FDIC indemnification relating to certain acquired U.S. commercial loans. Moving to Slide 18, formations were $454 million, slightly higher than last quarter due to normal variability in commercial and corporate portfolios. Gross impaired loans decreased with the GIL ratio improving to 65 basis points, down four basis points from last quarter. On Slide 19, our portfolio remains well diversified by geography and industry with 55% of loans in consumer and 45% in commercial and corporate. You will note that our oil and gas exposures represent approximately 2% of total loans, unchanged from last quarter. We have seen some negative migration in this portfolio largely in the borrowing-based transactions, which was not unexpected given the decline in oil prices. We also continue to monitor our consumer portfolios in the oil impacted provinces and have not seen any deterioration. Overall, we remain comfortable with our exposure. In summary, we had the credit results this quarter, reflective of solid performance across all portfolios. I will now turn it over to the operator for the question-and-answer portion of today's presentation.

Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Sumit Malhotra of Scotia Capital. Please go ahead.

Thanks. Good afternoon. I wanted to start with a couple of questions on the restructuring charge please. First off on the aggregate pre-tax $149 million number, it was mentioned that there was partially also a legal settlement included in that. This is probably for Tom, would you be able to split how much is legal and how much you think relates to the actual restructuring efforts?

Sure. It is Tom. 85% to 90% of the total charge relates to the restructuring and balance is to the legacy legal items.

All right, thank you for that. Then when we are focusing on the actual restructuring and tie in Bill's comments about $100 million in run rate savings. First off, I will assume that is 2016 target in terms of when that savings starts to come through. Please correct me if I am wrong there. When you think about that savings and the actual restructuring, could you talk to us about what segments would be most impacted here and should we be focusing in on areas such as headcount and branches or is it more broad-based than that?

Okay. It is Tom. I take that. Firstly the charge relates as Bill said, to looking to drive operational efficiencies in our businesses and to allocate resources in a way that we think makes sense and lines up with the opportunities that we have got in the business. The $100 million number is a full run rate benefit number and we would expect a little over half of that to be in the results for the current financial year and the actual results and with that higher on a run rate basis by the end of the year. In terms of impacts, we did look across the organization as we considered opportunities to drive efficiencies. All parts of the bank have participated in the exercise, including our operations groups, our functions and our business groups. We would be a little bit overweight in the capital market segment in terms of the allocation of the benefits that would come from the charge, but all parts of the bank participated and the benefits will come from things like thinning out the management ranks, where we felt that was a prudent thing to do, realizing benefits from works that we had been doing around process improvement and digitization, and in places looking to simply operate on a more efficient basis by reducing the resources that we have lined up against the opportunity in the marketplace.

Thank you for that full sum answer and I am going to re-queue after this last part. Just to ensure I have it clear. The charge has been taken here in Q2. Going forward, you do not envision the reported number having any more impact as a result of restructuring costs, but the ongoing core number should benefit from the savings starting to come through?

That is all correct.

Thank you for that.

The following question is from John Aiken of Barclays. Please go ahead.

Good afternoon. Bill, in terms of the increase to the dividend that you announced this quarter, when we take a look at the pro forma payout ratio on the $0.82, we are still running at the high end of the range on adjusted earnings basis. Are we to take this - that there is a fair degree confidence of the backend load coming from the domestic retail banking being able to support or - growing into this or is this more of underscoring the strength of the capital ratios that you reported this quarter.

John, I think it speaks to both, but we have always said that the dividend will be adjusted consistent with growth in earnings and what we are doing is reflecting the confidence we have in the individual businesses, any earnings in the quarter and the consequences that Tom talked about on the other side of the chart, so I would I would say it is both, and it reflects the strength of the capital position and our outlook.

I guess, going forward, more for Tom, can we expect the reported numbers to come up towards the adjusted number, you know, latter half, year end of 2016 as the payout ratio is well above the target ratio on a reported basis.

There is always going to be a permanent difference there related to the amortization of intangibles, so that number will have some decline curve, but not as sharp one, so that difference will continue. The charges we have talked about was a one-time item this quarter, so that will go away. Then lastly, we have had some integration expenses related to the integration of F&C, and those will decline as we move through this year and into next year, so I would back out the charge which is a discrete larger item and then expect a modest decline in the GAAP through time.

Great, thanks Tom.

Thank you. The following question is from Gabriel Dechaine of Canaccord Genuity. Please go ahead.

Good afternoon. My first question is on the Canadian P&C business, another soft quarter and you have guided to a pickup in the second half. By my math, if we can see that expense growth rate cut in half, you are flirting with the 5% earnings growth level and the Bill was implying that there is some upside to revenue or you have a better outlook for revenue growth going forward. I wonder if there is some upside to that 5%. If it is in Canada or if it is in the U.S., maybe you kind of wrap all that up and give me some confidence that the Canadian business is going to pickup from its current level.

Gabriel, hi, it is Ken speaking. Thanks for the question. I will comment on Canadian business specifically. As you say, the quarter has played out as I expected it would. The revenue at 4.4% [ph] better than 3% and NEM up 3 bps is helpful. I think, what you are asking for is if we do follow-through on some expense containment, which we will be doing and when PCLs return to four quarter averages as we expected that they will. How does the back half feel and what is your confident. For me, I expect that will be in the mid-single digits on income. I think NIM will hold on for us. Expense growth will moderate and the PCL will be back in line, so I think together you will see that in both quarters of the back half of the year and that is why we feel confident. This has been a bit of a bridge quarter as I see it, and Q1 was a little slower. We had to make some adjustments in Q2 which we have done in Q3 and Q4 benefit from those.

What about loan growth, because that has been trailing off for several quarters, I think that your starting from a very high level in 2013 and into 2014, but you know the trend in loan growth has been downwards for quite some time now.

Well, I think there is a few things that play here. First of all, the quarter-on-quarter loan growth is driven by two things. Number one, seasonality, number two, participation choices we have made in auto which I have described over last couple of calls. Looking at those things specifically, the auto business is down two points on the quarter, because of some conservative choices we have made on LTV in length of [ph] and credit scores. We are seeing originations pick up a little bit there and I expect that that business moves for us in the back half of the year. The cards business, it is down 3% quarter-on-quarter, but that is almost is very similar to the number that we were between Q1 and Q2 last year. The holiday season spending is in Q1. It is not in Q2, and I think I have described some platform changes we have made as well as two very strong product releases we have in the market now, the worldly AIR MILES the worldly CashBack that gave us confidence that both balances in revenue move in the back half on cards and in commercial lending. I think, we also feel that there is a good opportunity there as pipelines are very healthy as our draws and we like our sector focus, so. Those are a few examples that I think back up the confidence in the back half from a balance perspective.

Okay. Thanks for the detail. Then, Tom, I think it was in 2013, you had given some guidance on the impact of the rate increase on your NII. Could you update that figure for us please and know how it is split between Canada and the U.S., which I think in U.S. is obviously more likely to see and if you see a parallel increase and the timing of the higher NII? That would be helpful. Thanks.

Okay. I will respond to that. There is a lot in that question and the ultimate impacts will depend on how the yield curve moves and how markets evolve, but to give you a sense, in a in a simple scenario where the yield curve is up by 100 basis points on a parallel basis, the revenue benefit would be in the order of $230 million to the Bank, and of that a little over $150 million would be in the U.S. and the smaller amount in Canada. Of the U.S. amount, a good majority about two-thirds would be driven off of the short end of the curve versus the long end of the curve and that is in part given how we are positioned, but in part as well as you know, because the benefit from an increase in the longer end of the curve grows in true time as your balances mature over time, so that gives you a sense of the total magnitude and in the split Canada, U.S. in short piece.

Okay. That is exactly what I wanted. Thanks.

Thank you. The following question is from Meny Grauman of Cormark Securities. Please go ahead.

Hi. Good afternoon. Question following up on the loan growth in Canada specifically, residential mortgage growth, I am wondering what the dynamics are in terms of market share in 2014 talk a lot about gaining market share. I am wondering how the market share gains are stacking up. Are you losing some ground now and so any color on there would be helpful. Thank you.

It is Cam Fowler speaking. Thanks for the question. We did make some nice gains in 2014 on the mortgage side. That has flattened a little bit in Q1 and Q2. The nature of our performance in the mortgage market is one where we really invest in this time of year, in the spring campaign and it drives much of what we do for the next few quarters. Q3 and early Q4 are our main booking quarters. I would say that in terms of competition in activity in the market and our pipeline, I am pleased things look healthy and in line with last year.

Have you approached this spring mortgage market differently than you have in the past in 2014 in particular, any sort of changes in terms of how aggressive you want to be out in the market that has changed?

No. Nothing has changed.

Thanks.

Thank you. The following question is from Steve Theriault of Bank of America Merrill Lynch. Please go ahead.

Podium slipped there from my previous life. If I could start with a follow-up for Bill, Bill, you have been running or you once ran with the payout ratio higher than peers even at the upper end for a while, so take a difference [ph] at. Is there any thought on your part or at the Board level of revisiting the payout ratio target, particularly given that it seems as though transformational deals are not likely in the table or under the current regulatory backdrop. Is that not really on your mind.

No. Steve, I would not say that it is. I think the balance is still there between the first choice and preference being to - retained earnings back into organic business growth and where it can be done in a sensible way with expectation of a good return expanding the business through acquisition and really this dividend payout ratio has the benefit my view has the benefit of really being in the sweet zone for more shareholders that the confidence of a good consistent return in the dividend but it also protects the bank through the business cycle and I think that is a sensible way to look at it.

Okay. Then for Darryl, Darryl, the federal budget clearly targeting some tax efficient trading businesses, I know the outcome is uncertain and there would probably be some flow on that I suspect through the summer, but can you tell us how much of your TEB or your capital markets earnings are linked to the tax strategies the government is looking at. I know there could certainly be changes through the usual budget process. It is very difficult to tell from the disclosure, so analysts and investors should think about what is really at risk here in terms of earning?

Yes. Thanks, Steve. As you point out, there are a lot of things still to be settled, including the timing around implementations, so I would say at this point we are going to continue to work with our clients that are impacted by the proposal. It is too early to say with any certainty what the ultimate impact would be, but as you know businesses have changed before markets have change before and others have reallocated resources accordingly, so if you put all that together in a way I think about it is that in any event we do not expect it to be a item for the bank and we would not expect the impact to be greater than the low single digits of total Bank net income.

Low single digits of total bank net income. And that is keeping in mind mitigation I gather?

It is keeping in mind, Steve, some mitigation, but I would go back to my comment that it is difficult at this stage to know how much mitigation there will be, how you can redeploy and what the ultimate impact would be, so some yes.

Low single digits, so less than 5% I can probably extrapolate from low-single digits?

I think, well below 5%.

Okay. Thank you.

Thank you. The following question is from Robert Sedran of CIBC. Please go ahead.

Hi, there, Tom. I just wanted to come back to the restructuring charge for a second. If I am looking at this correctly, I believe there has been a couple of these in the past two or three years at the bank and I am curious to know how this one differs from the other ones that were taken and whether some of this just reflects some of the headcount repositioning and business restructuring what we have already seen in the capital markets business through the first half of the year? I guess, is it a perspective charge or is it about things that have already been done?

It is a charge that reflects your decisions that were made during the course of the quarter. With those decisions, some actions did take place during the quarter and there was some media related to those, so you are right to think that this is not new in a way this is just financial consequence of some of the things that you read about in the paper flowing through and you would expect that to occur. In terms of what is similar what's different to charges we have taken in the past. We taken the odd charge I do not know that we are overweighed charges and really they reflect work going on to, again, drive efficiencies in the business, enhance our processes in fundamental ways and increase the amount of digitization that we have in the business and to operate in a leaner fashion. The actions from the charge you know relate to steps were taking to remove cost from the business, so there is pretty much one-to-one relationship between the charge and full cost reduction that will flow from it to our businesses.

So this is a little bit of everything and it is severance, it is on spending on technology, it is organizational redesign. It is just a bit of a grab bag of a bunch of different things that are going on from an efficiency perspective? Well, I would say not really. It is not technology, per se, the technology expense would be in our run rate expense level, but it is in part the consequence of investment in technology in that the technology makes our operations more efficient, we are doing more things through technology and as a result in places, we need fewer people, so the amount of the charge relates entirely to severance and not anything. Then there are few reasons for that severance to be incurred.

Okay. I think, I have got it now. Thank you.

Thank you. The following question is from Sohrab Movahedi of BMO Capital Markets. Please go ahead.

Thank you. Bill, you noted that through the first half of the year, the bank has returned about $1.5 billion between buybacks and dividends, is there any updated thoughts as to what the right to capital return level aside payout ratios would be for BMO? How do you think about the next 12 months to 18 months?

Well, thanks for the question, Sohrab. I think it is really tied to opportunity in the places where we see a pickup in balance growth, it will absorb capital beyond the amount of the dividend. If you look at the last three or four years, I think it has been instructive that in 2014, we spent over $1 billion on an acquisition that was immediately accretive and advanced our position in the global asset management business quite nicely. In the year before, we absorbed the surplus capital with the buyback in the first half of this year, similarly we absorbed with the buyback. I think I have said this before in order priority beyond the dividend if organic growth could absorb all the retained earnings that would drive the highest return to shareholders and we would focus on that. Then with respect to acquisitions it is always going to be tied to the discipline around the right path to accretion and the strategic nature of it so, no, I would not say that there is an objective for return to shareholders beyond the payout range on the dividend.

Okay. Thank you. If I can just tackle on one other one very quickly, Tom, I know when you commented on the Canadian Bank P&C segments, you talked about - you provided a bit of perspective as to what you think margins would probably do balance of the year. I may have missed it. Did you provide similar commentary around U.S. P&C?

I did not directly.

Okay.

I commented on the change in the quarter and clearly we had a better performance on NIM this quarter than we have for the last few. The outlook over the balance of the year is for some continued pressure on the margin coming from competition in the commercial part of the business. The margin can move around for a variety of reasons as you know quarter to quarter, but we would expect something like two to three basis points per quarter over the balance of the year.

Thank you very much.

Thank you. The following question is from Mario Mendonca of TD Securities. Please go ahead.

Good afternoon. I wanted to revisit the volume growth in domestic retail and this might be good for Surjit and Cam. The slowdown or the decline in mortgages personal loans, cards, I guess pretty much everything other than commercial is notable, particularly because of the market share gains the banks experienced in 2014, so it would be helpful to understand is to what extent do this decline or slowdown really reflect a slowdown in the economy generally in which case we would see it across your peers or a significant change in the loan adjudication process for BMO?

It is Cam. I will start. I do not see this change that we have seen from a share and growth perspective to be linked as much to adjudication. I see the performance far more linked to where we are putting energy and where we have made participation choices. I spoke about the auto space already. Using cards is another example. This is a space where we have invested and in fact been a little focused the past year, year-and-a-half. Although we have had some positive momentum in some bit of that business, the balances in the revenue have been a little slower to come by, so that to me is just more about business performance, where as I said earlier, I expect to see improvements in the back half of the year. Using mortgages as another example, I think we are perhaps in the space where we are looking to put good numbers on top of good numbers, where the market is a little slower than it was before, but again I think it might be better to reflect on this performance after Q3 and Q4 and see how we feel.

When you say participation choices, I conferred from that on a change in your adjudication, so maybe there you are making a distinction that I am not making, so when you say participation choices, what does that mean?

Well, that means auto specifically. Who do we want to be doing business with in the auto sector, in the past few quarters I have made the point that there were trends in the longer [ph] high LTV that were making us a little bit uncomfortable. We believe in this business. We like the risk-adjusted returns. We just wanted to pullback a little bit from the risk perspective on that, which we did do and you can see that in the numbers we are down 8% from the year and 2% from the quarter. That said, I think, I said earlier the monthly originations are beginning to improve and we are sort of sticking to our prudence with respect to participation in auto, but that is really the only area I would focus on.

You would not say there have been any participation choices as it relates to mortgages?

Not particularly.

Okay. Thanks very much.

Yes, and I have nothing to add. I think Cam said it really well. We think risk return choices and price accordingly, so I think he is right accurate in his assessment.

Thanks.

Thank you. The following question is from Peter Routledge of NBF. Please go ahead.

Hi. It is for Darryl on the synthetic equity rearrangements. The way the government wrote about this potential change to the tax [ph] seem like the rules would change abruptly in the fall. How disruptive would that be to markets in Canada?

Peter, it is hard to know. That is a conversation that is alive I think in markets. As a result of it being alive right now, folks have an opportunity to sort to think about that and position accordingly. At this point, we are not out thinking about or declaring the disruption in the market. There could be some impact on our client base, but it is not at this point in place, so I am prepared to that declare with any specificity what we think the outcome will be.

Right. That is fair. Thanks. Not a related question, but I noticed in trading revenue the taxable equivalent offset is volatile quarter-to-quarter. What drives that volatility?

Well, yes. Peter, if you look over all at the trading revenues, the volatility that you refer to on a TEB basis, in fact if you just look at in aggregate. I would say when you look at this particular quarter, it is a pretty good indication of the client businesses behaving in a consolidated strong way. There was a stable market environment as you know. I think we performed well in that environment. Folks are tending to look a little bit in that volatility question on a TEB basis that our interest rates if you look in the sub-pack at our interest rate our performance, I look at that and I think that yes it was a good quarter from a performance perspective, but we have been there before on our rates and it is not about our historical highs. I think what is good in this quarter as it is not just in interest rate of fixed-income trading performance, we have had good performance in our equities in our FX as well, so you put it all together and it is a good client-driven trading quarter in a period where risk levels frankly were down. If you look at our sub-pack is down, so it is really simply solid relatively clean quarter, which might look volatile on the surface, but really the reason for that apparent volatility would be that there are no areas of particular weakness.

Yes. Just bigger picture question, growth in your business has been pretty impressive overall and certainly the market environment is helping you along the way, along with good execution? We are heading probably into a market where Canadian rates, long rates are flat and the U.S. - the yield curve starts to backup at the long end. Is that environment as accommodative as what we are in right now?

Yes. Peter, it might well be. I think the environment that is not as accommodative is one where we see sharp spikes involved as you saw during fiscal Q1, so that remains to be seen. That remains to be seen how the markets would react to any specific changes with respect to the benchmark yields, but to your general question I can see the markets being as accommodative with the caveat being what I said and a very significant vol shifts and are not particularly conducive and I do not know if we are going to see those are not. We will just have to see over the course of the next couple of quarters.

The spike in long-term yields in April did not hurt you though?

Not particularly.

Yes. Okay. Thanks very much.

Thank you. The following question is from Doug Young of Desjardins Capital Markets. Please go ahead.

Hi, good afternoon. I guess on the credit side then, I had a question, you mentioned that you did have negative migration in the quarter. I think you are watch list increased by $300 million and I think your collective provisions did not change, so I am just trying to understand and correct me if I am wrong. I think it is fairly formulaic and I am trying to understand why your collective provisions would not have changed. Then I guess on the same theme, what would cause the collectives to change moving forward?

This is Surjit. Let me start with the second part of your question. The risk levels in a company are reflected in the collective, so changes in risk levels are reflected in changes in collective, so going back to your question on the oil and gas portfolio, per se, looked at in the broader context, we have seen positive migration of portfolio in the U.S and as a company overall there has been no change in the collective allowance, because the positives have offset the negatives, so it becomes difficult for you to really look at a certain segment when you look at just collective allowance as closely. I hope that clarifies it for you.

Yes. I mean, I am correct to assume this is fairly formulaic, so I guess you are essentially saying in the U.S. you had some positive migrations, you have had some negative in Canada but net-net…

Sorry. You would not say it is formulaic. There is an element of judgment involved as well.

Okay. I may come back to you on some of the stuff. Just the second question I had, yes, I know you gave in the U.S. some kind of guidelines around what you expect on the NIMs. On the PCLs, obviously, they were extremely low I am sorry apologize if you have kind of talked about this already, but was there anything unusual on the quarter on the PCLs side and where should we expect U.S PCLs to kind of normalize here?

The PCLs in the U.S., again, as I think I mentioned in my remarks are reflective of the improving economic conditions and we do not see a change in those conditions, so I think the level of PCLs will remain at a low-level. We are seeing recoveries though, so over the past few quarters we have seen recoveries and they are the only part that I think that provide some variability.

Have you quantified what the recoveries were this quarter?

I do not have that number of hand, but they were not, I would say, out of line with the last quarter.

This quarter is not an abnormally low quarter. I mean this level of PCLs that we saw this quarter could be sustained over the next few quarters. Is that what I am reading here?

Yes. The recoveries can be bumpy, but for the last two quarters I would say that yes they would be above the variability I am looking at is not that different.

Okay. Good. Thank you.

Thank you. The following question is from Darko Mihelic of RBC Capital Markets. Please go ahead.

Hi. Thank you. My questions actually all spun out [ph] from the conference call, so just looking for a bit of clarification. The first question is on the cap markets business and specifically with respect to the synthetic derivatives proportion. I am a little bit shocked by the number, so when you say single-digit, below 5%. I do a little bit rudimentary math, I would say 3% of BMO's overall net income, $130 million just more than 10% of your business. First of all am I way off base on that. Then secondly, if I go back to what the budget had said, it said about $365 million was the benefits to Canada by closing this tax loophole, so it looked like you would be about third in that, which would suggest that you are perhaps have a disproportionate share of this business, so can you just talk to that I mean perhaps clarify for me if I am off in my math?

It is Tom. I will take a shot at it. The situation is one as Darryl said that is not fully developed, so there is the usual uncertainty that goes along with that. We do not think this will be a really significant item for the bank and we do not think it will exceed the low single digits, so low single-digit is not bumping into 5%. It is more like below 3%, and with that what we are trying to say really is, there is the potential for some impact and we wanted to acknowledge that, but we do not think it is a really significant impact and it is not bumping into higher numbers.

These are numbers after mitigation. Would it be fair to say that this is disproportionate, I mean, that Bank of Montreal's cap markets business is at disproportionate share or is the government's number just too low?

We obviously cannot comment on the number that the government had.

Okay. Fair enough. Second question just getting back to Cam, your answer with respect to what it is that improves in the back half of the year. You made it sounds like your expectation is credit will get better and NIMs are stable, loan growth perhaps improves and certainly efficiency improves, but you did not mentioned fees, so am I to assume that the fee increases that you have put through on the P&C side really won't have any material impact in the back half of the year?

Thanks for the question. From time-to-time, we make these changes, but in terms of the things that will drive improved net income and overall stronger growth, I do not think that any type of fee changes we have made are going to be material compared to those. I think this is going to be one of those things or it is a mix of reduced expense growth, stable NIM, PCLs better, revenues stable and they come together to form the better night and as I think I mentioned earlier, we are targeting positive operating leverage by Q4.

Okay. All right. Thank you.

Thank you. The following question is from Sumit Malhotra of Scotia Capital. Please go ahead.

Thanks for getting me. Just a quick one more for remodel purposes than anything else and not a line we usually focus on, but in the mutual fund revenues of the Bank this quarter, the mutual fund AUM was up 1% to 2%, while the revenue book, the fees book were up double-digit, sequentially I think it is 12% here if I got it right. Was there anything unusual that was included in the funds fees this quarter?

The wealth revenues were strong for the quarter as you know and as we talked about. It partly reflects the acquisition of the F&C. In some of our businesses, we do have performance related fees and the schedule for receipt of those varies through the year depending on the fund and there was not a lot of help from that, but a little bit of help from that in the quarter, but the bigger issue is that the core business is doing very well. This is a bit of a technical thing, but the average U.S. dollar was stronger during the year than it was at the end, so that might contribute to a bit of a disconnect between the final AUM number and the revenue numbers.

Yes. AUMs I guess translated on the spot and the revenue I guess translated on the income, so that could explain some of it?

That would be part of it.

All right. Not the biggest deal in the world, but did mess up the model a little bit so thought I would check. Thanks for your time.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Ms. Haward-Laird.

Thank you everyone for joining us on the call today. If there is any follow-up questions, we are happy to take them in IR. Have a good day.

Thank you. The conference has now ended. Please disconnect.