All participants, please standby. Your meeting is about to begin. Please be advised that this conference call is being recorded. Good morning and welcome to the BMO Financial Group’s Q4 2018 Earnings Release and Conference Call for December 4, 2018. Your host for today is Ms. Jill Homenuk, Head of Investor Relations. Ms. Homenuk, please go ahead.

Thank you. Good morning, everyone, and thanks for joining us today. Our agenda for today’s investor presentation is as follows. We will begin the call with remarks from Darryl White, BMO’s CEO followed by presentations from Tom Flynn, the Bank’s Chief Financial Officer; and Pat Cronin, our Chief Risk Officer. Following the formal remarks, a Group Head for each of our businesses will provide comments on their outlook for 2019. We have with us today Cam Fowler from Canadian P&C; and Dave Casper from U.S. P&C. Dan Barclay is here for BMO Capital Markets and Joanna Rotenberg is representing BMO Wealth Management. After their presentations, we will have a question-and-answer period where we will take questions from prequalified analysts. To give everyone an opportunity to participate, please keep it to one or two questions. 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 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. Darryl and Tom will be referring to adjusted results in their remarks, unless otherwise noted as reported. Additional information on adjusting items, the bank’s reported results and factors and assumptions related to forward-looking information can be found in our annual MD&A and our fourth quarter earnings release. With that said, I will hand things over to Darryl.

Thank you, Jill, and good morning, everyone. This morning, we announced earnings for the fourth quarter of $1.5 billion concluding a strong year in which net income increased 9% to $6 billion. Earnings per share for the year of $8.99 were up 10% benefitting from our diversified and competitively advantaged business mix. Return on equity for the year was 14.6%. When I think about the key takeaways for the year, we’ve made good progress against the areas we’ve been focused on, growing the contribution from our U.S. operations, improving efficiency while at the same time investing in our digital innovation agenda and deepening customer loyalty. In the U.S., our combined businesses delivered US$1.3 billion in earnings and are positioned for continued growth. We’ve managed the overall rate of expense growth at a consistent rate of 4% in constant currency in each of the last four years while at the same time increasing our technology spend at a double-digit rate over the last two years. We’re seeing the benefits of these investments and improved customer loyalty scores, increased digital engagement and a better employee experience through more simplified and automated processes. We’ve also maintained a strong capital position while at the same time growing our businesses and returning $3.4 billion of capital to our shareholders. During the year, we repurchased 10 million shares and today we announced an increase to our quarterly dividend of $0.04 per common share or 8%. This will bring our annual dividend to $4 even. On Slide 5, we provide the results of our overall U.S. segment. Consistent with our stated priorities, net income was up 26% and contributed 28% of the bank’s 2018 earnings compared to 24% in 2017. This was led by strong momentum in U.S. P&C across our Commercial and Personal businesses where our…

Thank you, Darryl. My comments will focus on the fourth quarter results and start on Slide 9. Q4 reported EPS was $2.57 and net income was 1.7 billion. Adjusted EPS was $2.32, up 19% and adjusted net income was 1.5 billion, up 17%. Adjusting items for this quarter include the positive impact from the remeasurement of an employee benefit liability of 203 million after-tax and a result of changes to benefit plans. In addition to this one-time gain, the changes made will reduce our operating costs going forward. Other adjusting items are similar in character to past quarters and are shown on Slide 26. Turning now to the quarterly results in more detail. Net revenue of 5.5 billion was up 9% or 8% excluding the impact of the stronger U.S. dollar reflecting growth across all our operating groups. Expenses were up 6% or 4% excluding the impact of the stronger U.S. dollar and expenses from the acquisition this quarter. Net operating leverage was 2.9% in the quarter. Before moving onto taxes and as a reminder, in Q1 of each year we expense deferred compensation for employees who are eligible to retire. In Q1 '18, this expense was 111 million and we would expect some growth from this number in Q1 of '19. The effective tax rate was 19.7% in the quarter, modestly above last year and below the prior quarter. The effective tax rate on a teb basis was 22.5%, down from 27.2% last year. The lower tax rate in the quarter reflects the benefit of U.S. tax reform and the favorable U.S. tax item. The favorable U.S. tax item was slightly more than fully offset by the impact of higher reinsurance claims and the legal item in Wealth. Moving to Slide 10. The common equity Tier 1 ratio was…

Thank you, Tom, and good morning, everyone. The material risks for the bank were a little changed from the last quarter and we remain comfortable with risk levels in our various businesses. Starting on Slide 17. The provision for credit losses on impaired loans was $177 million or 18 basis points relative to our total outstanding loans. That level is flat compared to the prior quarter and consistent with provisions taken throughout fiscal 2018. The total provision for credit losses was $175 million which included a $2 million reduction in allowances on performing loans. Looking specifically at our impaired provisions by business unit, the impaired loan provision of $118 million in Canadian P&C was largely flat quarter-over-quarter resulting in a PCL ratio of 21 basis points relative to total Canadian consumer and commercial loans which was identical to Q3 2018. PCL on impaired loans for U.S. P&C increased modestly in both the consumer and commercial portfolios with consumer increasing $3 million and commercial increasing $4 million. This increased the overall PCL ratio on impaired loans for U.S. P&C from 22 basis points to 24 basis points, still well within an acceptable range and consistent with our experience throughout 2018. Capital Markets had a net recovery on impaired loans of $3 million as a result of a PCL reversal on an oil and gas account that returned to performing status, partially offset by a new reserve also in the oil and gas sector. This continues an overall trend in Capital Markets, a very modest PCL or even recoveries through 2018. Wealth management was flat quarter-over-quarter at $2 million of PCL. As mentioned previously, we had a recovery on PCL on performing loans of $2 million. Our allowance for performing loans remains strong with approximately 2x coverage over this year’s provision for…

Thank you, Pat. 2018 was a strong year for Canadian P&C. We continued to deliver good financial performance including underlying earnings growth of 9%, operating leverage of 1.3% and 60 basis point improvement in our efficiency ratio. Looking forward, I expect similar operating performance in 2019 with a continued focus on reducing structural costs to enable investment in our strategy while improving efficiency. My confidence is grounded in three main areas. First, we have an excellent commercial business and we’re investing to grow nationally. We’re number two in the market and expect strong absolute and relative growth. We’re focused on diversifying across industries and geographies outside of our core strength and have seen strong results including double-digit growth in healthcare, technology and in the GTA. Second; in Personal, we’re focused on growing our primary customer base and the strategy is working with strong double-digit improvement in primary customer growth this year versus last. This is good for Canadian P&C and it’s good for BMO. From a product perspective, we’re focused on deposits, cards and mortgages where we’re significantly increasing our marketing and putting compelling offers and products forward and we’re seeing good momentum with quarter-on-quarter share gains here. And finally, on digital, we’re driving customer and business value through great digitally enabled experiences. I’m very pleased with our strong progress including top tier digital sales performance at 25% and a market leading mobile banking app. We received the Gartner Eye on Innovation Award for the Americas for our bill pay experience reflective of the strong innovation of our teams. In summary, I’m confident in the results we delivered and the advances we’ve made against our strategy in 2018 and I’m excited about continuing this momentum in 2019. Over to you, Dave.

Thanks, Cam. U.S. P&C delivered record results in '18 with adjusted net income up 36% and revenue growth of 9%. We had strong loan and deposit growth as well as the favorable rate environment and the impact of the U.S. tax reform, all of these contributed to significantly improved results in our U.S. P&C business. Expectations for 2018 are for continued good growth with positive operating leverage, although we do expect revenue growth to moderate somewhat from the very strong levels in 2018 as we expect to pass along higher rates to our customers with the subsequent rate increases. Our Personal business continued to show great momentum with strong deposit growth and improving lending trends and we expect to build on that with an enhanced digital strategy to drive higher customer counts and improve productivity in this business. The long-term growth strategy for our Commercial business remains on track. We continue to add meaningfully to our client base through geographic expansion, increased focus on our specialty businesses and deeper penetration of our existing customer base. Overall, I’m optimistic about our direction and momentum heading into '19 and believe we can continue to outperform on a relative basis. With that, I’ll pass it to Dan.

Good morning. Despite a less constructive environment this year, we continue to deliver good revenue and earnings contribution. We remain well positioned with a diversified client-focused business model and a prudent approach to risk management. In Canada, we had leading market share positions across all products and sectors and we intend to competitively protect our position. We will continue to grow our corporate lending books in Canada and the U.S. with an overall growth rate roughly consistent with our experience over the past two years. As I outlined in Investor Day, our strategy is to accelerate growth in the U.S. while maintaining franchise strength in Canada. We made several investments to further strengthen our U.S. platform, including the acquisition of KGS-Alpha, the acquisition of loan books and expanding talent in key sectors. As a result, we are well positioned going into 2019. We’ve experienced volatility recently; however, assuming markets are constructive we are confident that we will maintain our strong position and continue to drive momentum across all of our businesses. We expect to deliver strong revenue, income growth and positive operating leverage for the year ahead. Over to Joanna.

Thanks, Dan. In Wealth management in 2018 we had a good year delivering adjusted net income after tax of 1.1 billion. While we experienced some items in the back half of the year that aren’t expected to recur, we had strong underlying performance including net new assets of 25 billion which are 50% higher than the prior year with over 80% of our AUM meeting or exceeding their five-year benchmarks, record loan growth in our North American private banking businesses and good deposit growth. In client loyalty, our net promoter scores are up 7 points year-over-year across all of our relationship businesses and we had J.D. Power Honors in both InvestorLine and Nesbitt Burns and high net new client growth. We’re confident in the strategy we set out at Investor Day and we’re committed to our five-year goal of doubling our earnings in our Wealth business. In 2019, assuming rates continue to rise, we’ll deliver strong double-digit net income growth. This will be weighted towards the back half given the recent downward trends in equity markets. We’re also expecting similarly high rates of loan and net new asset growth that we delivered this year. Finally, we’re reviewing ways to lower our variability in reinsurance with an eye to this year’s renewal cycle. In conclusion, we’ve got good momentum and we’re progressing on our strategies and with conducive markets we’ll have a strong year. Back over to the operator.

Thank you. We will now take questions from the telephone lines. [Operator Instructions]. The first question is from John Aiken with Barclays. Please go ahead.

Good morning. I guess I get to initiate Dan on his first call. Dan, in terms of the operating leverage that we’ve seen in the platform, that’s been negative for the last two years. Now I know that you stated you’ve been putting investments in and the acquisitions have impacted that. But you also stated you’re expecting positive operating leverage in 2019. Can we take that to mean that the investment phase is starting to slow down and you’re hopefully going to be able to reap what you’ve sowed?

I think that’s the right conclusion. I hope you saw during Investor Day we talked about our scalable U.S. platform. We made good investments to-date. This year, we accelerated some of those investments as we saw great opportunities to bring forward what we saw in the future. And we believe now we’re in a place where we can grow with markets being constructive.

And Dan, how confident are you on being able to generate positive operating leverage if markets aren’t constructive or aren’t helpful?

As you know, that’s a challenging question in a challenging environment to operate in. We’ll obviously be adjusting expenses if the market is challenging with the majority of our expenses being in the employee side. Adjusting that will be done in a thoughtful manner as we go forward.

Great, Dan, I appreciate the color. I’ll re-queue.

Thank you. The next question is from Meny Grauman with Cormark Securities. Please go ahead.

Hi. Good morning. A question on the $15 million in recoveries in Canada, just wondering what assumptions are driving this? It just seems surprising giving the outlook, so just wondering what’s the key factor there.

Hi, Meny. It’s Pat. I assume you’re referring to the changes in the performing loan provision, correct?

Correct.

Yes. This is going to be maybe somewhat of an unsatisfactory answer but if you think about what drives changes in the performing loan bucket, there’s a lot of factors that go into that. Not the least of which is loan growth, moderating economic forecast variables that we might put into various models, certainly some migration and the migration experience can be different across geographies and within businesses. We do make some changes in weightings between adverse base and benign from one quarter to the next and we did that last quarter and we did it again this quarter. And then as you know there’s experience credit judgment that is layered on top of that as well that takes into account lots of factors, including portfolio performance differences we’re seeing across consumer and commercial but also macro issues that are out there like trade issues and USMCA being a good example. So long story short, there’s going to be a lot of noise in those numbers. I think migration was probably one of the bigger issues this quarter. We had some positive migration in Canada. We had negative migration in the U.S. So that explains some of the difference between the two geographies. In the U.S., in particular, there is some deterioration in the ag portfolio mostly related to grain and dairy, so you’re seeing that start to filter through in terms of some of our provisions for performing loans. As you look at things building up in the watchlist, you start to make adjustments. So that’s why you’re going to see over the course of time some differences in various geographies and businesses that might on the surface be harder to explain. But when you think about all the moving parts that are underneath the performing loan changes, that’s really what you got to take into consideration.

I appreciate the detail. One area that you mentioned was just economic assumptions and just to drill into that just a little more. So are there some economic assumptions that’s actually improved over the quarter? And if so, would you be able to highlight which ones?

I would say – Meny, probably not to go through the laundry list, there’s a lot of variables that drive the models. I would say generally speaking the overall tone of the changes were to moderate our forecast for the future. So nothing dramatic but we have a slightly more moderate view of economic growth probably relatively consistent with the general – the economics view that’s out there in the marketplace.

Thanks, Pat.

Thank you. The next question is from Ebrahim Poonawala with Bank of America Merrill Lynch. Please go ahead.

Good morning, guys. I guess, Tom, if you could speak to your expectations around both the Canadian and the U.S. P&C margin relative to where we ended the year in the fourth quarter and your rate assumptions backing that margin forecast?

Okay, happy to do that. I’ll start with Canada, then go to the U.S. So in Canada in Q1 and over the next few quarters after that, we would expect the margin to be up 1 to 2 basis points a quarter and there’s some benefit there from rate moves and also positive change in mix, including good deposit growth and good commercial loan growth. And we are assuming a couple of moves by the Bank of Canada in that outlook. And then in the U.S., our margin in the first quarter we think will be down a little bit. That’s in part given that we had some recoveries that helped the margin in the current quarter. So we’re probably down 2 to 3 bips-ish in the first quarter. And after that we think we’ll be relatively flat as we look ahead over the next couple of quarters. And in that assumption – or those assumptions rather are based on a couple of incremental hikes by the Fed.

That’s helpful. And is it fair to say that in Canada if we don’t get as many rate hikes as we expect, there’s probably downside to the margin where in the U.S. if the Fed were to stop after December there’s maybe an upside to your margin expectations given the pressure on deposit betas?

I would say directionally in Canada we might go from being up give or take 2 bips a quarter to being flattish if we didn’t have the moves. And in the U.S. there’s still some benefit from Fed moves. It’s not as great as you know as it used to be, but there is some benefit still. And so if the Fed didn’t move, I’d expect a little bit of weakness relative to the numbers that I talked about.

Got it. And just to follow up on the previous questions around the Capital Markets expense and investments that we’ve made, absent the big sort of change in the revenue backdrop is it fair to assume that that business operates around the 65% adjusted efficiency ratio, or do you expect it to go back to 60% without sort of a big uptick on revenues? Just trying to understand like you’ve made some investments, expenses have gone up over the last three years, like how much of those investments paying off will bring down the efficiency ratio?

It’s Dan here. I think as we look forward, you would have seen at Investor Day that we were forecasting to take the efficiency ratio down under 60%. That’s the goal over the medium term. With all this Capital Markets flow and market conditions, that will go up and down a little bit quarter-to-quarter, year-to-year. But in the long term we expect to get to that as our overall target – medium term, sorry, as our overall target.

Okay. Thank you very much.

Thank you. The next question is from Steve Theriault with Eight Capital. Please go ahead.

Thanks very much. A couple of things from me, first maybe starting for Cam. Cam, you mentioned an emphasis on cards. The growth has been a little bit modest this year. Some big news with Canada resolution. Maybe a bit of an outlook there, like do you think you can get to mid to high? Like how much of a push in cards can you get to mid-to-high single digit growth? And also I know you restructured the World Elite card offering early in the year. Has that been a drag at all in terms of balanced growth this year and is that – are you sort of revisiting that on the back of your plan for '19?

Sure, thanks. It’s Cam here. The momentum in the cards business has been relatively strong, so at 3-ish that’s consistent growth quarter-on-quarter from last year and I expect that we’ll continue to build that up into '19. Refresh product offer more strength in small business cards, more marketing, better digital offering. So on balance we feel quite good about it. It will be a more competitive environment to be sure in light of the changes to the dynamic that you mentioned, but I think we’re confident on continued growth on the retail card side including small business. On the World Elite, I think the short answer has there been a drag would be no. That one is still an award winning – the World Elite is still an award winning card in the market and leading the way for us.

Okay. Thanks for that. And then just secondly probably for Tom and Darryl you mentioned in your opening remarks some better trends in consumer in the U.S. Last November you had the mortgage purchase that obviously helped through the year in terms of growth in comps. So I would say it probably looks like modest growth in percentage terms excluding that. I’m wondering are portfolio purchases, like the one you did last year, is it rising at all on your wishlist? Are you thinking about that for 2019? And would it be nice to have in terms of driving the growth for next year?

It’s Tom. So we did have the one portfolio purchase in the current year. It was about 2 billion of mortgages in personal U.S. I think importantly the portfolio did grow organically excluding that acquisition in the year. We felt good about that. And looking out into next year, we think we’ll have growth again. And as we’ve talked about before, we’re looking to grow our balances through our existing channels and given that more consumer credit in the U.S. is being originated through different channels, we’re looking to participate in those through relationships. So we expect some flow to come from those in next year that will help generate the growth. And at the time we did the $2 billion mortgage transaction, we said that that would be in the upper end of what we would expect and we wouldn’t expect many transactions with that kind of lumpiness and that continues to be true.

Okay. Thank you.

Thank you. The next question is from Gabriel Dechane with National Bank Financial. Please go ahead.

Hi. Good morning. Just a quick one on KGS-Alpha. Did I miss that, the quantification of the core Tier 1 impact of 22 basis points at some point? It’s still a pretty chunky – 600 million plus of capital. I’m just wondering why it was so large.

It’s Tom. So the transaction was around 22 basis points. At the time we did the transaction and after that we talked about an impact I think it was of 10 to 12 basis points. That’s coming from two parts. Risk weighted assets are about 17 and goodwill and intangibles are about 5 bips on the ratio. And the RWA is a little higher than we thought it would be and we think that will trend down a bit over the next year as we refine some of our models. And some of their business activities are a little different than the ones that we’ve had through time. We’re totally comfortable with them, but there’s a little model refinement that we need to do in order to get the RWA we think more reflective of the underlying risk.

Okay. Thanks for that. And my next question is for Pat and he did allude to some of the moving pieces behind how you – the influences on your stage 1 and stage 2 allowances sort of Meny’s question. I’m just wondering, which ones matter more? So you got these optimistic base case and pessimistic scenarios and some banks seems to have done this, big drop in the pessimistic scenario but followed by a sharp recovery and others have been more like lower for longer GDP growth. Would you have a similar outcome if you fell in one camp or the other? Do the probabilities matter more? What’s the kicker?

I think it’s probably a bit too early to say. It’s going to I think probably depend a lot on migration particularly as you get migration in the business segments. Those tend to be lumpy and as they move from – and I think you can see a little bit of that actually in some of the disclosure we put around migration between stages and the disclosure this go around. But you can see in the commercial and the corporate segments those tend to be lumpy in one quarter to the next. So I would say that’s probably one of the bigger drivers. On the other end of the spectrum changes in weightings particularly small ones like we made from one quarter to the next tend to have a fairly modest impact. And so that’s kind of the benchmarks. And in between there, variables on the economics side won’t necessarily change a lot quarter-to-quarter and typically our current forecast already reflects hopefully a pretty good view of how things are going to play out over the course of time. So we wouldn’t expect to change those a lot. So I would say you’re most likely looking at migration as one of the larger drivers of what you’re going to see in the performing loan side over the course of quarters.

Thanks. That’s helpful. But if I can sneak in another one there. You did mention you changed some of the weightings last quarter and this quarter. What drives you to do – what did it do and what drove you to do that?

So last quarter we made a modest increase in the adverse scenario probability reflecting some concerns we saw mostly on the trade front. And then as some of those – our view is some of those clouds cleared this quarter. We made a commensurately modest adjustment away from the adverse and back into base and benign.

Okay. Thank you.

Thanks.

Thank you. The next question is from Robert Sedran with CIBC Capital Markets. Please go ahead.

Hi. Good morning. Thanks for the outlook statements. I find them helpful. I have a question though regarding them when I listened to Cam and Dave, I gather the two growth rates are going to converge between Canada and U.S. Personal and Commercial banking. But what I can’t really tell particularly with some of the margin guidance that you gave, Tom, was whether Canada was going to outgrow the U.S. or the U.S. was going to outgrow Canada in terms of earnings growth in '19? Any color you can provide? And am I right in assuming those two are going to converge next year?

It’s Tom. I’ll start out and others can join if they would like. I would directionally the answer is yes in part because we had extraordinary growth in U.S. P&C this year. And our income growth for the year was 30% plus and that reflected a great combination of very strong balance sheet growth, higher interest rates and lower taxes. And so next year you’ll see a more traditional, more normal income growth path for the U.S. business. And we do expect continued good growth and we think the balance sheet will grow at a nice rate, but the growth will come down from those higher levels. And so you will see a fair bit of convergence.

So Cam and I are sitting here arm wrestling to see who’s going to grow more next year. This is Dave. Look, I think we had real good growth this year. We were 9%. We guided a little bit down just because of the NIM and giving some money back to our customers. We’re going to continue to grow, we think we’ll continue to take share and we think we’ll continue to outperform on revenue our peers. So I know Cam may want to say something too but I don’t know if they converge or not. I think the U.S. is looking pretty good from an economy standpoint. I hope they both grow up.

Okay. Thank you for that. And just quickly – I hate asking about trading revenue, but there was a pretty big day seeming on – if I look at the histogram in sort of mid to late October well in excess of anything else in the quarter. Is there anything you can tell us about that day and whether it was accounting or business or what it might have been?

Sure. It’s Dan again. It was one of our franchise clients. It was a trade that we spent considerable time during the year doing. It was on the equity derivative side and it was one transaction.

Okay. Thank you.

Thank you. The next question is from Sumit Malhotra with Scotia Capital. Please go ahead. I apologize. It appears Mr. Malhotra has cancelled his question. The next question will be from Doug Young with Desjardins Capital. Please go ahead.

Good morning. I guess this is for Pat. The IFRS 9 disclosure and thanks for it, it does show what the allowances would be for base case and adverse but not for the upside. And I know each of the banks has decided to provide it a little bit differently, but would you share with us what the weightings are between the different scenarios or what allowances would be for the scenario you didn’t provide?

I hate to disappoint you, Doug, but the short answer is we are not disclosing that at the moment. We’ll take it under consideration for next quarter. But at the moment we’re comfortable with what we’ve disclosed so far. Our view with respect to disclosing the benign scenario was that it didn’t provide a lot of incremental value. Our assumption was the market was more interested in how things might look in the downturn. So that’s why we provided base and adverse. But we’ll take under consideration for a future meeting.

And I’m not picking on BMO, I’m picking on all the banks was just trying to get some consistency across the disclosure, so that was just one thing that was standing out. But then just on credit and what have you [ph], it looks like there was a slight increase in write-offs in the quarter and I haven’t to be honest peeled through all the details here. I don’t know if there was anything in particular that you could note on the write-off side?

Sure. As you imagine, write-offs particularly in the business and government segment can be lumpy from time-to-time and that’s really all that was for this quarter. We had three sort of I would say normal size business write-offs out of the impaired bucket. And there’s nothing sort of sector wise that I would highlight as a trend there. These things just tend to be lumpy from time-to-time. You would have seen a commensurate decrease in the gross impaired bucket. It was in the services sector. As you know that’s a fairly diversified sector. So again, no theme with respect to the write-offs. Those just can be lumpy from time-to-time.

And then if I can sneak one just last in for U.S. NIMs and you’ve talked Tom about the forecast and what your expectations are. Maybe you can shed some light on are you seeing any increased competition in the U.S. lending market more on being more lenient on commercial lending terms, because it sounds like right now maybe it’s a little bit on loan yield, maybe more on deposits. But what we can see is anything on the term side. Are you seeing anything from a competitive standpoint on that side?

So this is Dave. I’d say the competitive nature in the U.S. has probably been stable over the last couple of quarters. I haven’t seen any significant migration downward. Our spreads kind of follow the market. We tend to be – in most cases we’ll go for a little lower spread and a little bit higher credit quality. But as we continue to grow, we’ll see some continued diminution in the loan spreads. And we’ve had really strong loan growth. So no big monumental change to-date but continued modest downward pressure probably.

Okay. Perfect. Thank you.

Thank you. The next question is from Mario Mendonca with TD Securities. Please go ahead.

Good morning. Tom, if we could go to like a different lens on your earnings, the segmented numbers I think you’ve done a great job and again I also appreciate the guidance you guys offer on the segmented basis. But on a total bank basis really starting from the balance sheet up, there are a few trends that are showing up and we’ve discussed this in the past. But if you could help me think through some of the things we’re observing here like the increase in securities and I’m splitting trading here or cash resources or any of those liquidities, they’re up about $49 billion in 2018 or about 26% from Q4 to Q4. That’s outpacing your loan growth like a pretty substantial margin. So could you help me think what are we seeing here? Is this something – is there a strategic element to this?

A few things, Mario. We have had growth in liquidity on the balance sheet. Some of that results from a view that we do want to have a strong liquidity position and so some of the growth in liquid assets reflects that decision that we’ve made. Some of the growth that you’re seeing would also be in Capital Markets. Not all of their portfolios are in trading even though the majority of them are. And the growth there would reflect client business that we’re doing. And in the quarter from a quarter-over-quarter perspective the growth in securities included growth from the acquisition of KGS and so their balance sheet showed up more in that line than any of the others. And then in addition in the fourth quarter we had two dynamics at play that contributed a bit to the liquidity. The first was we had very strong deposit growth in our business and therefore it didn’t need as much of the wholesale funding that we had raised to fund the loan growth because we had strong growth in customer deposits. And in addition we’ve got some maturities coming up in the first quarter and we’ve done a bit of prefunding around those. So long answer but I’d say three main points. Number one, we have consciously increased liquidity somewhat over the last year in a bit. Number two, some timing issues related to maturities. And number three, there is growth in client activity in Capital Markets.

Okay. Just a quick follow up then maybe for you and Pat. Are there any meaningful impacts to the bank’s risk profile or capital strength as a result of this growth in 2018?

I would say no. The liquid assets almost by definition are high quality and don’t put a big capital drain on and add to the balance sheet strength I would say.

And then finally what would you expect in 2019?

I would expect less outsized growth in '19. We are growing the Capital Markets business but I don’t think the growth differential relative to the average on the balance sheet will be as great.

Thanks, Tom.

Thank you. The next question is from Sumit Malhotra with Scotia Capital. Please go ahead.

Thanks. Good morning. And sorry about that before. First one for Tom just a couple of clarifications on capital. The point you made on the KGS capital impact and how you might be able to adjust some of the RWA pickup going forward. Is that essentially transitioning the book or restating the book from standardized to advance that accounts for that difference? And then related also for you Tom, it sounds like the impact of the upcoming OSFI changes in Q1 is half as much as you previously communicated. Just wanted to confirm that and what may have changed in that regard?

Yes. Okay. So I’ll take the second one first. We think the change in Q1 will be 10 basis points. That’s lower than we had previously guided and the big reason there is the change for 10 basis points relates to the change to counterparty credit risk. And as we were going through this year there was a question about whether we would also have a change for securitization, RWA. And as it turns out we will not have that changing Q1 of this year. It’s more like Q1 of next year, so Q1 of 2020. And so that accounts for the drop in the impact in the first quarter. And then in terms of the KGS part of the question, the difference really relates to just reflecting in our models some of the particular business dynamics that go with the business that they do. And their business is focused mainly on U.S. agency paper and we were in that business but not to the same extent, which is why the acquisition was attractive to us. And there’s a degree of I would say conservatism in the numbers that we’ve got now just because the position is newer for us and we need to tune some of our models and we think that will come out during the course of next year.

All right. So I think when all is said and done, you might end up migrating back closer to the original capital impact that you communicated?

Correct.

All right. And then moving over to the business for – I’ll start with Cam anyway. When I look at the revenue growth in Canadian P&C, so on a quarterly basis looking at year-over-year over the course of 2018, the growth rate in the top line did steadily decelerate. And coming into this year with B20 having come aboard, I think at least I had the view that you’re lower real estate exposure in Canada would make BMO somewhat better positioned for that. The overall numbers have been fine but the revenue as I say is at the industry level, it’s something like 4%. When you start looking out to 2019 and I’m sure you already have, what is a reasonable revenue growth assumption in this business and what do you realistically need to produce to make positive operating leverage a goal that can be achieved?

Thanks for the question. It’s Cam here. I think a reasonable revenue prediction for the year ahead is mid single digits. I think it’s going to be building through the course of '19, so it will feel a little different in '19 than it did I think in '18. When you look at the revenue right now I think that there’s two things at play. One is maybe half the delta is NIM and half the delta is balances and the balances primarily would be on the personal side. On NIM being up 3 doesn’t probably tell the full story and there is timing on these things. If you looked at it from a five-quarter perspective, Q4 '17 we’re up I think 4 or 5 if I’m not mistaken then. So we did have margin movement and I expect as Tom said earlier in the call, we’ll be in the 1 to 2 per quarter through '19 which I think will be helpful. On the balance side, we’re leaving Q4 on the commercial business in double digits in loans and deposits and I expect that that will continue at that rate and that should be market leadership type growth. On the personal side, it’s been a story more of the build. We have been a little bit slower on the lending side in retail. But there’s strength on the cards business, there’s strength in deposits and I would expect the quarter-on-quarter share gains we’ve seen, although modest in deposits and in mortgage if you consider amortizing HELOC to continue. So what would it take to do the 5% plus? I think it’s those things but it’s a little more momentum which we shall see I think in the second half of the year on the retail side that will make the big difference.

And last one for me and I’ll try to keep this brief --

Sumit, sorry, just because we have a couple more questions in the queue.

Okay. We’ll try it after. Thanks.

Okay. Thank you.

Thank you. The next question is from Nigel D’Souza with Veritas Investment Research. Please go ahead. Nigel D’Souza: Thank you. Good morning. I just wanted to follow up on a question regarding your Canadian residential mortgage growth and the dynamic of amortizing HELOC and I appreciate the additional color that you provided here. So when we look at that 3% year-over-year growth that you provided for mortgages plus amortizing HELOC and relative to a flat residential mortgage book, for me that implies about a 3 billion in contribution in terms of the year-over-year increase. And how should we think about that? Is that roughly equal to about nearly 1 billion a quarter of revolving to amortizing conversions or how should we think about that dynamic?

Thanks for the question. Yes, I think that we will be in the range you described. So it’s 3 blended year-on-year and quarter-on-quarter blended there are two, so a mid-single digit. The asset balance you described in terms of what it’s worth I think is likely in the range. Nigel D’Souza: Okay. And just a last quick question if I could squeeze it in. Again, I appreciate the disclosure, the breakdown and the mix between revolving amortizing. It’s 45% revolving, 55% amortizing. Just to get a better understanding, would you put that growth of the industry on par or are you running at amortizing mixes that are relatively higher or lower than peers? I appreciate the color.

I must say I’m not perfectly clear on the competitive position of everybody, but I would say that we are in line to potentially slightly better on the amortizing. Nigel D’Souza: Okay. I appreciate the commentary. Thank you.

Thank you. The last question will be from Scott Chan with Canaccord Genuity. Please go ahead.

Good morning. Just going back to KGS-Alpha, you kind of cited that it contributed to higher expense growth in the quarter but what about the revenue contribution or perhaps at a high level just the state of the USMBS and ABS market?

Hi. It’s Dan here. The contribution was in line with the expense growth overall and consistent with how they run the model. We did have positive income out of that for the first two months and I think we’ll expect that to continue through '19.

Okay, great. And Joanna just lastly on the Wealth side, did you guide for double digit earnings in the back half of '19 or for '19 in total?

Double digit earnings in the total year but emphasize towards the back half in terms of acceleration.

Okay, got it. Thank you very much.

Thank you. This concludes the question-and-answer session. I would now like to turn the meeting over to Mr. Darryl White.

Thank you, operator, and thank you all for your questions. In closing, I would reiterate the commitment to our medium-term targets that we made at our Investor Day last month and my confidence in the strength of our foundation, our strategy and our people to achieve them. Our people are our most valuable asset and it really is all 45,000 of us operating as one bank and one team that creates sustainable performance. So to wrap, thank you for joining the call today and we wish all of you the very best for the holiday season and a successful 2019.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you all for your participation.