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 2019 Earnings Release and Conference Call for December 3, 2019. Your host for today is, Ms. Jill Homenuk, Head of Investor Relations. Ms. Homenuk, please go ahead.

Thank you. Good morning 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. Darryl will than provide some outlook comments before we move on to the question-and-answer period. 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 here for BMO Wealth Management. During the question-and-answer period we will take questions from prequalified analysts. To give everyone an opportunity to participate, please keep it to one question. 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 2019 annual report and our fourth quarter 2019 earnings release. With that said, I will hand things over to Darryl.

Thanks, Jill. Good morning, everyone, and thanks for joining us today. This morning we announced earnings for the fourth quarter of $1.6 billion and earnings per share of $2.43, both up 5% from last year. We delivered Bank-wide pre-provision pre-tax earnings growth of 11% in the quarter with positive operating leverage in every operating group. Earnings per share for the year of $9.43 were up 5%, reflecting good revenue and income growth across our North American platform. 2019 was a year of strong and consistent delivery across our businesses with significant progress made against our strategic priorities. Revenue grew 6%, PPPT earnings were up 7% and expenses were well-managed. As expected, expense growth in the second half of the year moderated significantly with expenses growing at just 2.6%. All of our businesses are working hard to achieve their priorities. Canadian P&C ended the year with a particularly strong quarter, with excellent loan and deposit growth in both our personal and commercial franchises. In commercial, we are maintaining a dominant position with a strategic focus having added targeted capacity that is driving incremental return. We are winning on value through expertise and understanding of our clients’ needs without sacrificing on our long-term strategy of growth through diversification and prudent risk management. U.S. P&C continues to benefit from the same strategy. As a top 10 commercial lender in the United States, we have a strong brand and offering, an unparalleled understanding of client needs and the ability to compete effectively in every market. We are building relationships for the long-term with a strategic focus on continuing to diversify our revenue mix, which includes an increasing contribution from our treasury and payment solutions business and enhancing our return on equity. Our U.S. Personal business has long been the foundation that enables our commercial…

Okay. Thank you, Darryl, and good morning, everyone. My comments will focus on the fourth quarter results and we will start on slide nine. Q4 reported EPS was $1.78 and net income was $1.2 billion, adjusted EPS was $2.43 and adjusted net income was $1.6 billion, both up 5%. Results in the quarter reflect good performance in our flagship P&C businesses and positive operating leverage in all Groups. Pre-provision pre-tax earnings growth was strong at 11%. The lower income growth of 5% reflects higher credit losses and a lower tax rate given a recovery last year. Adjusting items this quarter include, restructuring charge of $357 million after-tax related to severance and a small amount of real estate related costs. The charge reflects a Bank-wide focus on accelerating the delivery of our agenda, including improving efficiency. Initiatives underway are focused on digitization, organizational redesign and simplification of the way we do business. The charge will impact approximately 5% of our workforce. We expect our initiatives to drive expense savings of approximately $200 million in fiscal ‘20 and to achieve run rate savings of approximately$375 million by Q1 of 2021. Adjusting items this quarter also include a $25 million after-tax reinsurance adjustment, which I will speak to later. Adjusting items are shown on slide 26. Turning now to revenue, net revenue of $5.8 billion was up 5% reflecting good performance in our P&C businesses and increases in Wealth Management and Capital Markets. Expenses increased 1%, reflecting higher technology and employee related costs, partially offset by lower premises expenses. Operating leverage for the quarter was good at 3.8% and positive as I said earlier in each of the operating Groups. One reminder related to the first quarter of next year, in Q1 of each year we expense deferred compensation granted to employees were…

Thank you, Tom, and good morning, everyone. Starting on slide 17. The total provision for credit losses this quarter was $253 million or 23 basis points, a decrease of 5 basis points from last quarter. Both provisions on impaired and performing loans were lower this quarter compared to the prior quarter, with PCL and impaired loans down $12 million and provisions on performing loans decreasing $41 million. Turning to the credit performance in the businesses, Canadian consumer impaired loan provisions decreased $23 million quarter-over-quarter to $110 million. The improved Canadian delinquency rates disclosed in the supplementary financial information package also supports what we are seeing as continuing good underlying loan performance in the Canadian consumer portfolio. Canadian commercial P&C on impaired -- PCL on impaired loans at $24 million is also down from the prior quarter, reflecting a constructive credit environment across most of the portfolio. U.S. Consumer PCL on impaired loans was $17 million, up from a low result of $8 million last quarter, but well within our expected range for this portfolio. U.S. Commercial PCL on impaired loans decreased slightly from the prior quarter to $49 million, reflecting the stable credit performance that we saw across most of our commercial portfolios. Capital Markets PCL on impaired loans was $32 million, the large majority of which was in oil and gas, mostly related to three accounts. The provision for credit losses on performing loans was $22 million, a decrease of $41 million from the prior quarter. The decrease from the prior quarter reflects somewhat more positive macroeconomic variables and modestly lower balance growth versus Q3. Turning to slide 18, formations were $799 million, as an increase in business and government formations was partially offset by a decrease in consumer formations. The largest increase in formations was in manufacturing across…

Thanks, Pat. Looking ahead to next year, we are going into 2020 with confidence and good momentum in our businesses. It’s a general balanced optimism that’s shared by our clients. In fact, in the past couple of months, many of them have expressed more confidence to me on general outlook than they did several months ago. We expect the opportunities they are seeing in this somewhat more stable environment will support their propensity to continue to invest and build for future success. In Canada, we expect macroeconomic conditions to remain constructive in 2020, improving modestly from 2019 with stable interest rates and unemployment running at a four decade low 5.6%. In the U.S., we expect economic activity to slow modestly in 2020 in response to trade protectionism. With three interest rate cuts in the past four months, lower interest rates should provide support to the U.S. economy in 2020. We intend to continue to grow by taking market share in this environment. As we have said before, we anticipate that Commercial loan growth will moderate somewhat from the growth rates that we have seen for some time both in Canada and the U.S. On credit quality, as you have just heard from our Chief Risk Officer, we are confident in the strong credit quality of our portfolios and we expect to see relatively stable credit environment in 2020 with PCLs in the low-to-mid 20s. Overall, while we anticipate some revenue headwinds in 2020 and a few areas including absorbing the full impact of three U.S. rate cuts in the early part of the year, we will continue to grow our business and we will maintain disciplined expense management targeting overall expense growth around the 2% level for the year with each of our operating businesses working to deliver positive operating leverage. Our financial objectives remain unchanged. Our goals over the medium-term are to achieve average earnings per share growth of 7% to 10%, return on equity of 15% or more and in an annual net operating leverage of 2%. While some of these targets may be more challenging in the current environment we remain committed to them in the longer term. Our capital position remains strong with the CET1 ratio of 11.4%. We are well-positioned to support our long-term performance, while staying alert to opportunities for growth. To conclude, I am very proud of what we have accomplished in 2019. We have made good progress on our strategic priorities and I feel good about the clear momentum we have going into 2020. We have energy, resilience and focus. We see growth potential across all of our businesses. We know where we are heading and we are accelerating how we will get there. By intensifying our focus on areas of competitive strength, we will continue to grow long-term value for BMO stakeholders. And now, I will turn the quarter -- the call over to the operator for the question-and-answer portion of today’s presentation.

Thank you. [Operator Instructions] The first question is from Meny Grauman with Cormark Securities. Please go ahead.

Hi. Good morning. I wanted to ask about the restructuring charges, specifically if you could talk to how you decide to take restructuring charges, and specifically, I am wondering, when you took the Q2 charge in Capital Markets was the plan to take this Q4 charge or did something change in your outlook and what was that?

It’s Tom. I will take that. Thanks for the question. So the -- I will firstly deal with your question around the Q2 Capital Markets charge. When we took that charge we were not expecting the fourth quarter charge that we took, and as you know, we absorbed that charge within the Capital Markets results. And the way we think about it this Q4 charge is different in that it reflects a Bank-wide program to, as we have said, accelerate delivery of our priorities, including improving efficiency. So when we are doing things on a Bank-wide basis of this magnitude, we take the approach that we have taken to putting the charge in corporate and adjusting. And answer to what might have changed or shifted, as we thought about the year we were in and then look forward to next year, we wanted to be in a position to continue to drive the efficiency, and although we feel very good about our relative momentum and we feel good about our ability to grow next year, in a couple of places, there will be a little bit of pressure and to, I would say, offset or more than offset that, we wanted to be in a position to drive very low expense growth. And Darryl’s talked about the target of 2%, which is what we are shooting for and the charge is an enabler of that and an enabler of us achieving the mid-term efficiency target that we have set at 58%.

Just as a follow up, when you talk about the pressure that you foresee is that primarily margin pressure or is there something else...

It -- no. The margin pressure in the U.S. is a part of it and you saw that in the U.S. P&C margin in the quarter. There’s a little more that will roll through next quarter and GDP growth for the U.S. is projected to be down slightly next year. Our economists actually have Canadian GDP up next year compared to 2019. So we are not expecting a big shift in the environment, but there are pockets of pressure, and again, we do feel good about our ability to continue to outperform, which we do think we have done in both of our P&C businesses in particular over the last several quarters.

Thank you.

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

Hi. Just a quick follow up on the restructuring charge of the cost savings that you are expecting, can you give me a sense of how that’s going to be split across segments where I am going to see it? And then I have got to follow up on U.S. loan growth.

Yeah. So it’s Tom. Thanks for the question. I guess, I’d say it’s a Bank-wide focus and set of initiatives as we have talked about. And so, I would expect the savings that we have talked about to flow through each of our businesses in a fairly representative way. And it’s fair to think about that both by operating group and by geography, yeah, and so it’s true on both dimensions.

All right. Then the question on the loan growth in the U.S., it’s been mid-teens for a few quarters now and that’s a good thing to see, people like growth, but on the other hand that generates some concerns that it’s brought out -- brought upon additional risk to the Bank because of the outsized growth versus the industry. And I am looking at the oil and gas portfolio as one of the drivers in the past few years of phenomenal growth and now we are starting to see losses. Hopefully you can help me frame the oil and gas growth and some of the credit issues we are seeing today?

Sure. It’s Pat and thanks for the question. I will speak specifically to oil and gas. Yeah, the growth has been strong over the course of the last couple of quarters. I think you will see that the growth actually is starting to moderate in this quarter and we would expect that to be the case going forward. The thing we like from a credit perspective in the segment particularly in the U.S. is that most of that lending is reserve based and if you look at the U.S. -- particularly in the U.S. exploration development segment of the portfolio, 99% of that segment would be reserve based lending. And so we would lend pretty conservatively with fairly reasonable loan to value against proven reserves and so we think that actually protects us quite well in a downturn. And so even though you might see formation rates and GIL rates higher in this segment that we expect the provision for loan losses to be reasonably low. So you will see the PCL we took this quarter relative to the formations, you will see it’s a rate of around 15%, 17%. We are pretty comfortable with that profile as we grow the book. It’s a sector that we think we have a North American and arguably a global franchise. So we really have good lending standards and good bankers in the segment. We have been in it for a long time. We understand how the cycles work and we are good at work out. So we are pretty comfortable with the growth rate especially given the secured nature of the lending that we do there.

Let me -- this is Dave. Let me just add a little bit to your question on the U.S. loan growth, which on the commercial side would not include oil and gas but was high and I think you mentioned 15%. I would expect in the next year that it would moderate from that. The growth has really come from adding new customers throughout the United States where we still have a lot of whitespace. We have not in any way compromised on the risk appetite that we have had and it continues to be the same and I am very comfortable with the growth we have had. But I would expect just for some of the reasons we have talked about before would be some moderation in the 2020. Does that help?

It does. Thank you.

Okay.

Thank you. The next question is from John Aiken with Barclays. Please go ahead.

Good morning. Pat, just carrying on from Gabriel’s question, we have seen the gross impaired loan ratio ticking up. Now I understand, I completely get with the underlying security, how you can have provisions falling when formations are going up. But this has been a trend for the last three, four quarters, where we have seen greater amounts of formations. How comfortable are you that this is going to ease off or expectations that we are going to see continued impaired formations going through for 2020 at a similar pace?

Sure. And thanks for the question. I think we have been flagging for a while that we would have -- we have expected the impaired loan and the PCL rate to drift up really from a really benign level that you would have seen in 2018 and 2019. I mean if you look back at Q4 ‘18, the gross impaired loan rate in the portfolio was the lowest we saw in a decade and so there’s like -- just logically going to be some upward drift in that. At 58 basis points, just to put that in the context for you, the average GIL rate over the past three years was 56 basis points and the past five years was 59 basis points. So I actually see that rate in more or less the normal zone for where we are in the cycle. I will split it though into two pieces, consumer, I would say, is actually quite strong. Wholesale’s a little bit towards the higher end of the range. And as we have noted, that’s really being driven much more by some sector specific issues related to oil and gas and agriculture. Those two sectors make up 40% of our total gross impaired loan portfolio right now, and as we have talked about in the past, we expect loss rates to be low there, because the oil lending is secured against reserves and the Ag lending is secured against land. So I am not uncomfortable with where we are. I think we have been expecting a drift upward in the loss rate and I would expect it to stabilize at this level going forward, given the fairly stable economic environment that we are seeing and fairly modest GIL rates in many of the other sectors that were growing in business and government.

Thanks, Pat. That’s great. But, I mean, when we take a look at the U.S. business formations, I understand that you can take a look at oil and gas and even on the Ag side is being a little bit more, I guess, specific. But we actually are seeing inflation in some of the others like manufacturing, even though you said it was broad based. Is the fact that we are seeing hot spots varying -- to varying degrees in different segments, is this concerning or are you still quite confident that like you said leveling off at 50 basis points, 55 basis points, sorry 58 basis points is expectations going forward?

Yeah. I would say it’s not concerning. I will deal with manufacturing specifically because that was one of the bigger formations this quarter. Formations, as I am sure, you have seen in the past can be quite lumpy. And if you look at manufacturing in particular, you look back at formations and GIL rates over the course of the last two years, you will actually see they have been running low, including even in Q3 of this year. So this is quite specific to this quarter and this to me reflects the normal lumpiness that you see in a big segment like manufacturing. That really reflects four names, one in Canada, three in the U.S., no theme to them from completely different subsectors. So if your question is, am I seeing systemic themes within the portfolio reflected by those kinds of formation rates, the answer is no.

Great. Thanks, Pat. I am with you.

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

Thanks. If I could just start with a follow-up on Capital, Tom, based on your end in the 15 basis points to 20 basis points of headwind that looks like for, excuse me, Q1, it looks like you could be -- with normal accretion you could be below that 11.5% level through much and -- maybe all of 2020. So wondering is there anything you are looking at or whereof that might provide some upside to the CET1. I guess, I am asking in the context of prior indications that the buybacks…

Yeah.

… on pause here until you get above 11.5%?

Yeah. So a few things, in Q1 we will have as others will be adjustment. So our impact for that is in the 15 basis points to 20 basis points level. And we talk normally about the ratio going up by 10 basis points to 15 basis points per quarter. That continues to be our expectation and as we have said for the last few years given the strong commercial and corporate loan growth we have had, we are more likely to be at the lower end of that range than the upper end of the range. In terms of buybacks, the focus on that from our perspective goes up. I’d say, as we approach the 11.5% ratio on the CET1. And so as we look forward, there’s some potential for activity in the middle-ish of the year. And exactly where we will land will be a function of the loan growth that we have got. But we think there’s a reasonable chance that mid-ish year could be Q2, could be Q3, there’s some activity under the buyback as we approach that 11.5% level.

Okay. That’s helpful. And then, I did want to ask on the U.S. Capital Markets, very strong, even with the oil and gas provision. If we look through that credit charge, it looks like earnings would be in U.S. dollar terms well over $100 million and pretty close to double run rate from last year. So just, Dan or Tom, maybe you can talk a bit about the sustainability there and how much of that lift is due to the KGS acquisition this year?

Well, thanks for noticing that. Yeah. We had a very strong performance in the U.S. this year. As we have talked about for a while, we have been making good investments in people and in the KGS acquisition. So that platform will be scalable and allow us to continue to grow. I think as we looked at it this year, we wanted to get over the next five years somewhere between 45% and 50% of our revenues out of the U.S. We have achieved that target now and are bullish that we can increase beyond that. We are working towards our other targets to double market share as we go forward and so all of those are building to what I think is a relatively robust U.S. outlook and a very sustainable from where we are today.

Okay. All right. Thank you.

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

Hello. Good morning. I just wanted to start with a follow up on the restructuring charge and it’s, I guess, for Darryl. I mean, you mentioned, this is probably the last one, but there’s been one every year for a number of years. I am curious what gives you the confidence and what should give your shareholders the confidence that this is truly the last one for the foreseeable future?

Yeah. Thanks Rob. It’s a good question. Let me give you a little bit of context. If I go back over the last couple of years, you will have noticed that I have been asked in some conferences, Mike, we take another charge. And my response has been, we don’t know, but if we do, it’s very probable that we will say that we will not need to do it in the foreseeable future. So that’s exactly what we did today. And unpacking that, when I think about your question, there are few things that are going on that are different. The first is as you have seen this is a sizable move. This is 5% of the Bank’s global population that’s in scope. The second is you heard me saying and you heard, Tom, said quite clearly, we are holding the line a lot more tightly in the normal course on expense growth, you saw us that 2.6% expense growth in the third quarter and fourth quarter at this year, that was not benefiting from this restructuring charge. So we are on a new path as far as that continues improvement of the operating efficiency of the Bank and this charge is designed to accelerate that path as we go forward. And it’s also the case, Rob, that if you think about, the management through the spine of the organization and you look to the discipline that we expect from managers and this is, I would say, an important change in terms of how we are looking for people to make operating decisions every day. We are looking for people to invest in areas where we have opportunities for growth and slowdown in areas where we don’t without reliance on this technique and the assist of a charge and so that’s a very sort of clear message to the entire organization in terms of how we expect to manage ourselves going forward. So when I put all those together in addition to the real benefits that we are starting to see from technology and digitization, we are confident in telling you that we will retire this play from our playbook.

Okay. Thank you. And just a quick question for Cam, I guess, the margin has been up 4 basis points in each of the last two quarters. I can’t imagine that that is the rate environment. So is it business mix or is there something else going on? And how sustainable do you think this level of net interest margin is for you?

Yeah. I will take that. Its Cam’s speaking. It’s a combined effect of mix and some flow through of the longer rate. Primarily on the mix side though, you can see the deposit growth in there and where we are seeing growth in other areas there in the higher margin areas that we have not been as good in particular in cards. So that with commercial lending I think is helping. With respect to outlook, I’d say, we sustain it, it will be broadly flat through ‘20 is what my expectation is.

Okay. Thank you.

Thank you. The next question is from Doug Young with Desjardins Capital Markets. Please go ahead.

Hi. Good morning. Just wanted to go back to the restructuring charge that you took in Capital Markets in Q2 and so when I look at what you said then in terms of guiding to about, I think, it was and correct me if I am wrong $40 million of savings this year, $80 million next year. I am surprised we haven’t seen more of a drop in the Capital Market expenses and hoping you can unpack that. And is that $40 million of savings this year, is -- has that been achieved and should we still be expecting $80 million next year, so just hoping to get a little more detail on that? Thank you.

Sure. So in terms of the performances this year, yes, we have saved the $40 million that we advertised. The run rate is going to be $75 million versus the $80 million we talked about in Q2 and that’s just really a slight change in people that we have looked up. And obviously, with our participation here in the corporate-wide charge, we expect higher savings next year. And so, as we go forward, I think, that number you are using around $75 million for next year is a good number.

And is there a reason why we haven’t seen more of an expense reduction overall over the last few quarters in Capital Markets, is there something sticky in there?

Yeah. I think the expenses have come down materially. If you look at it on a full year basis, I think, the gross number is up 14%, 13.5%. But if you take out the acquisition of KGS and you take out the restructuring charge we took in Q2, that’s about 2% for the year.

Yeah. Just -- I am just -- because I look at the mix ratio of being just over 67% in Q4 this year, I think, it was the same last year. So I just -- anyways -- I was just a little confused by that and I guess Tom.

Yeah. Just one question I guess for you, I mean, I think, I see it a little bit tighter than that. But we delivered positive operating leverage this quarter, which is the first quarter this year. And as we look forward we expect to deliver meaningful operating leverage next year.

Okay. And then, Tom, just on the reinsurance business, is how long -- can you remind us how long the tail is on this going, when does that risk roll-off? Thank you.

Yeah. The tail is pretty short. So by the middle of next year it’s basically gone. It’s not entirely gone, but it’s very small at that point.

So middle of fiscal ‘20?

Yeah.

Okay. Thank you.

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

Thanks. Good morning. I will start with Tom. The statement that expense growth in 2020 will be in the range of 2%, that’s not overly different from what we saw in the second half of this year, and frankly, not different from where I see expectations for the Bank before this charge was announced. So is the benefit that you are deriving from these savings that you are talking to us about, having to be reinvested in other areas of the business, because I know you look at these numbers very carefully as well. It just doesn’t seem like that targeted expense growth is that different than we otherwise would have had?

Yeah. Thanks for the question. I guess a few things. Firstly, we absolutely do continue to invest in areas of the business where we think there are good growth opportunities. We have been doing that for the last three years and we continue to do that. And I’d say, we are pushing ourselves to differentiate more in terms of how we allocate resources. So where we see opportunities we are dedicating resources and where the reverse is true we are going in the other direction. And then there is a bit of a timing issue here. So I talked about in my comments how the benefits from the charge and fiscal ‘20 would be $200 million and by Q1 of ‘21 the annualized run rate would be more like around $375 million and so the timing factor is part of the picture as well.

So -- yeah. And then, certainly, I think, when you have announced these charges over the years it’s always been that the -- you will build into a greater level of savings. So I think what you are saying is as strictly the savings or the expense growth in 2020 you may not be that different than we were expecting, but perhaps, it lowers the 2021 and beyond level of increase that the Bank will achieve?

Gabriel, its Darrell. I will just come in on this as well, I would say.

Oh! No. It’s Sumit by the way.

Oh! Sorry, Sumit.

Gab is a charismatic guy though. I will it from it.

You guys are all starting to sound the same to me. So that’s fine. Look, Tom, is nodding his head, the answer to your question Sumit is yes. The additional point I wanted to make is that when you look at 2%-ish for 2020. Another way to think about it is that as you guys know you have got certain expenses that are much higher than that and you have got some that are much lower than that as you decompose the expense base of a Bank. For example, you will have certain costs that you are locked into contractually, you will have pension, you will have real estate, you will have certain things that will increase at a mid single-digit expense rate, you will have technology that as we have told you we have invested above the 10% level for the last three years, that will moderate a little bit into the mid-to-high single-digits as we go into next year. So you have a whole bunch of things that pull the weighted average expense growth up and then you have a whole bunch of others where, frankly, we are looking at and this is where the impact of the charge will come in, we are looking at direct controllable expenses across functions and groups that will be negative. And so, when you bring all that together, you get to the number that we are giving you at 2%-ish and I think the way you might think about it is that relative to the past couple of years when you think about the expense grade of the Bank growing at 3.5% or 4% or a little over 4% that comparable relative to 2% is in our mind a pretty big difference in a commitment to shareholders.

The fact of this charge wasn’t contemplated as recently as six months ago from what we heard. Darryl, did you decide that the 2021 next target of 58% or maybe even the 7% plus EPS growth that you target, I know that’s more medium-term. Did you make the determination that those targets would be unable to be achieved without a restructuring charge of this magnitude?

Yeah. I think the way to think about it is that this accelerates our ability to get there sooner and we are investing in this now. We don’t expect to do it again. And for sure, I assume in the last half of the year you saw things that we didn’t see in the first half of the year, including three rate cuts in the last four months. And so whether that was in everybody’s forecast or not four months ago, five months ago, here we are today and that will have some impact as we talked about for us and everybody else as you guys have shown in your modeling on the revenue side. So I’d say it’s a combination of all those things.

Thanks for your time.

Thank you. The next question is from Scott Chan with Canaccord Genuity. Please go ahead.

Good morning. I just had a follow up question to Meny’s question on U.S. margin. Tom, you talked about fiscal Q1 getting impacted again. Can you kind of just clarify that comment, are you talking…

Yeah.

… about a higher sequential decline in margin in fiscal Q1?

Yeah. So in Q1 we will just have some of the roll through from the fed cuts that we have already had. So they are not fully in our numbers. We think that will result in the Q1 NIM being down about 10 basis points, so down a similar amount in Q1 compared to Q4. And then after that, we are expecting more stability and we don’t think the fed moves again, we will see how that plays out. But on the assumption that they don’t move and given the expectation that there will be some moderation in loan growth, we think that the margin is going to be more stable after the Q1 point. And then, in Canada, we do think, as Cam said, that the margin will be fairly stable through the course of the year.

Okay. And if I could just dig in one more just on the Canadian loan portfolio, I see that consumer and other personal continues to kind of increase and we are kind of seeing obviously higher leverage from consumers and some delevering I think across some of your peers. What’s driving that incremental growth in those portfolios for BMO?

Its Cam speaking. I heard you say what’s driving the consumer lending growth in Canada, so I’d say…

Yeah.

…a couple of things. On the bigger change side of things, we have quite strong card growth. You can see that that’s been the result of a battery of activities linked to stronger use of digital and data around our portfolio management and most of that is actually focused on doing more with our existing customer. In addition to that, in the cards line you will see more activity on the small business side, which is the result of two things, a new product suite that came out in recent quarters, as well as improved product capabilities that are more digital in nature linked to line of credit. So that’s what I say on the card side. On the similar side of capabilities that actually driving the line of credit side on the Personal. In the last several quarters we have seen stronger growth in that regard. Again, more around digital and data capabilities with existing customers is underneath that. And then, finally, on the resel side, we have said that we would expect to be at or just above the market here that we focus on the proprietary channels. And with respect to that, I think, the combined effect of some sales force adjustments that we have made by region, as well as offering and digital capabilities are driving some strength there at 5%. So there’s no one thing here, which I think is what we should be looking for. I think to your point at the beginning about where the Canadian consumer is at. I think it’s conceivable that some of that activity does slow in the market modestly over the next several quarters, which probably isn’t a bad thing. I would expect our capabilities and momentum will likely continue about where we are, because we still have opportunity with our existing base. And I would say also that the housing market is a little stronger probably than most people thought a couple of quarters ago and that will be to the good.

Great. Appreciate the context. Thank you.

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

Good morning. First maybe for Tom, outside of the domestic P&C and U.S. P&C, did you see any meaningful change in margins that the Bank generated in the quarter?

I guess the only other thing I’d highlight looking at the all-Bank quarter-over-quarter ex-trading margin, is that we did have some pressure in the corporate segment and that came through as a result of holding higher levels of liquid assets. So that was a contributor to the all-Bank ex-trading quarter-over-quarter move.

But anything specific ignoring the mix?

No. No. The change is really, I would say, were driven by mix and the fed cuts in the U.S. and so other than the higher level of liquidity in corporate there was nothing at all unusual.

Okay. Just quick follow up and -- maybe not a quick follow up actually. I was -- I am looking at the improvement in the Bank’s efficiency ratio since 2015 and it’s been meaningful. It looks like a solid maybe a little under 300 basis points, maybe 270 basis points is what I have been looking at that. And then time period from 2000 and maybe a little more, yeah, probably over 300 basis points. In that time period, the Bank has had some meaningful restructuring charges as well about $600 million pre-tax. Your outlook over the next two years would imply another say 300-basis0point improvement in the mix ratio where it stands today I think, yeah, that’s about right, with, call it, $488 million pre-tax and restructuring charges. And the reason I am going through the numbers here is, it seems to me like the next two years the revenue environment is going to be more challenging than the last five years. But yet you are looking for it as meaningful an improvement in the efficiency ratio over a much shorter period of time. All of this to really get, I mean, what is your level of confidence in this 58%.

It’s Tom. So I would say, we are focused on the delivery of the 58%. I won’t quibble with your numbers but I will say ours are a little different.

Yeah.

So since 2015 the adjusted efficiency ratio is down 410 basis points, you might cut the numbers slightly differently, but the adjusted number is down by 410 basis points since 2015.

Yeah.

And as we look forward, we are going to be focused on growing the business, investing where we see opportunity and being very aggressive on expenses elsewhere that will drive the low expense growth that we have talked about for next year. And then, over the last three years, we and others have had a very significant level of investment in technology. And our tech spend, as we have talked about has been growing at a double-digit rate on a base that’s north of $2 billion. We expect that level of spend to moderate as we go forward and that’s because we have got good capabilities in place. We have made lots of investments and we think we can afford to with that dial down the growth a little bit, which will help. But some of the savings that we generated from efficiencies absolutely went to funding in effect that technology spend. And you hear us talking about our diversified business mix. We do like the mix we have got. It’s roughly 40% P&C Canada, 20% across U.S. Banking, Wealth and Capital Markets. And we do think we have got upside in the Capital Markets business coming from the investments that we have made in the U.S. We think our Wealth business will have good growth as we look into next year and good operating leverage. And as we look at relative performance in the P&C businesses, we feel good about heading into next year. So I wouldn’t say the target’s an easy target, but we think with all of the things that we have got underway. It’s one that is with a lot of hard work achievable.

And the topline to get to that efficiency ratio, you are not implying -- you are not suggesting, I think, special about the topline, just sort of your standard maybe 5% topline growth.

Yeah.

You are suggesting would be sufficient.

That’s correct. Like...

Okay.

...mid-ish single digits topline.

Got it. Thank you. Thanks, Tom.

Thank you. We have time for one last question, which will be from Darko Mihelic with RBC Capital Markets. Please go ahead.

Hi. Thank you. I just wanted to revisit the Capital Markets business and I am looking specifically at your supplemental and I am looking at page 11 in the sub-pack and what I am looking at there is the trading component. And if you look at line 20, it’s bouncing around all over the place this year from $81 to $94, $$122 to $203. I am just wondering I don’t get this granular my model, but I am looking at this overall and I am wondering is this KGS-Alpha, what’s causing the volatility and how should I think about trading going forward from here. Is this like the new run rate, the new normal or should we expect significant growth here on the interest rate side and overall total trading?

Hey. It’s Dan here. And I think the dynamic when you take a look at some of those quarter-over-quarter numbers is, there’s an impact in what we call our structured note business. That structured note business when we look at the way we trade sometimes shows up in equity, sometimes shows up in interest rates and so that’s what’s driving a lot of that quarterly volatility. As we look forward, I think, an average over those quarters is probably a right way to look at it and we do anticipate growth. We have made the investment in KGS. Our securitized products business, we continue to make investments in that and do see meaningful growth coming from it over the next 24 months to 36 months.

Okay. Meaningful growth, how would you characterize meaningful growth?

I think for us as we have talked about on Investor Day, we are looking for our U.S. platform to grow at kind of a 10% revenue CAGR and I think that would be consistent with that.

Okay. Thanks very much. Quick question last one, I promise it will be fast going to the U.S. P&C business. Dave, what might help us is, just going back to Gabe’s question about loan growth. And I understand your business is really in about eight core states and then you have some specialty sectors. What would be great to know is the growth that’s happening, say, outside of a couple of core states. So if I were to say core states for you, I would always think of Illinois and Wisconsin. And if I think about this over a five-year period, how much growth has come from the other states and/or the specialty sector. I don’t expect you to have these numbers at your fingertips, but it will be very helpful to know kind of what’s driving that growth? And then, the question circling back is why does it moderate, if you are growing in specialty…

Yeah.

… in these other states, why does it actually have to moderate?

So, good question, Darko. The first part is, the growth has been really a national business for a long period of time. The -- we absolutely do business in those core states on the commercial side. But we have and we have for the last 20 years, despite where our people maybe in all of these specialize groups and in some -- in geography. We are out in the marketplace all the time. So, I would say, well, over 50% of where the loans are actually booked, where the clients are, is outside of that core business and has been and continues to grow. And for example, our asset-based lending business or our dealer finance business, or our food and consumer business, that’s a national business and continues to grow. The reason, I think, it will -- look, I don’t think it will subside because we have exhausted all of our opportunities. I think it will subside to some extent, if it does, just based on the general economic view. So not a slowdown from our standpoint, other than just what I think will be slower economic growth in the U.S. Does that help?

Yeah. It does. Thank you.

Okay. Thanks.

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

Thank you, Operator, and thank you to all of you for your questions. In conclusion, as I mentioned earlier, we are going into 2020 with good momentum in all of our businesses. Our commitment to our strategic priorities in key areas of focus will continue to guide us as we build on the decisions that we have made and the foundation we have established to the position that brings the Bank forward with continued good performance. All of our employees are united in our ability to compete effectively serving our customers, shareholders and communities well. Thank you for joining the call today. We wish all of you the very best for the holiday season and a successful year ahead.

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