The Nation’s Business

Soothing noises from the virtual banker

Peter C. Newman October 28 1996
The Nation’s Business

Soothing noises from the virtual banker

Peter C. Newman October 28 1996

Soothing noises from the virtual banker

The Nation’s Business

Peter C. Newman

The Bank of Montreal’s Matthew Barrett has always stood out among Canada’s bank chairmen as the guy most willing to debunk the mythology that still surrounds his industry. Last week, by inaugurating an imaginative virtual banking system called mbanx, he finally provided a cure for those Canadians who still feel intimidated when dealing with banks. Stephen Leacock, the witty economist who became preindustrial Canada’s best-known storyteller, made his reputation with the essay “My Financial Career.” It described his daunting dealings with banks, treating the act of facing fiscal father confessors almost as a religious ordeal. That certainly is very much less true today, but with new electronic banking like the BMO system, it’s not going to be true at all.

“We’re moving from a reactive, routine, processing type of relationship to a much more proactive, value-added kind of partnership, and it’s the new technology that has allowed us to do that,” boasts Barrett. “Mbanx will be a new populist dimension in banking, giving customers unlimited electronic access to the Montreal’s services, around the clock,

365 days a year.”

The innovative move is part of Barrett’s crusade to get ahead of his competition.

“What’s not widely understood,” he told me in a Vancouver interview earlier last week, “is that this is a fiercely competitive industry, with almost everybody wanting to eat our lunch. The restructuring phenomenon that has shaken up the manufacturing industries is about to engulf the service sector, worldwide.” Barrett intends the mbanx initiative not only to move his bank ahead of the other Big Five, but to show that Canada’s financial service industries can be globally competitive and become one of the country’s strategic assets in world trade. ‘We’re going to see an absolute free-for-all,” Barrett predicts, “because adding the physical bricks and mortar that was traditionally the barrier to entry and expansion in banking is disappearing before our eyes, and available technology is taking its place.”

While all of Canada’s chartered banks regard the world as their playground, Barrett is obsessed by the idea of turning the Montreal into a North American bank that happens to have its headquarters in Canada. The bank’s main U.S. subsidiary, Chicago’s Harris Bank, earlier this year acquired the 54-branch Household Bank, giving the combined operation 140 branches in the American Midwest. At the same time, the Montreal purchased a 16-per-cent interest in Grupo Financiero Bancomer, Mexico’s second-largest bank holding company. The American bank already accounts for $40 billion of the Bank’s $161 billion in assets, and at least 35 per cent of its 1996 profits to date. Barrett expects that within the decade, 60 percent of his bank’s revenues and two-thirds of its profits will

BMO chairman Matt Barrett: ‘We’re moving from reactive banking to a value-added kind of partnership’

be earned outside Canada. “We want to be the NAFTA bank, serving a single, unified market,” says he.

‘What I’m increasingly concerned about,” he adds, “is that the possibility of being considered best in class may be eroded by the concern among Canadians that banks are too big. I don’t know what ‘being too big’ means in today’s global context. We must, as a people, gain more self-confidence, start believing in ourselves, start to understand that we’re as good in many areas, including financial services, as anybody in the world. Even if we’re a wealthy country, we’re a little country at best, so that in order to prosper we must be able to compete on the global stage with the behemoth institutions that dominate the much larger economies. Those are the public policy debates I’d like to see instead of all the tiresome bank bashing.” The bank bashing has been fuelled by the record-breaking performances of Canada’s financial institutions. BMO itself earned alltime-high profits of $877 million for the first three quarters of 1996, and the size of Barrett’s take-home pay packet was more than $1 million in 1995. “I have a lot of trouble understanding this notion that somehow big business is bad and small business is good,” he says. ‘To my way of thinking, a big business produces a product or service that satisfies millions of people, while a small business has a few customers. So, why should it be socially bad to be doing something that conveys value to large groups.” Barrett adds with the subtle Irish wink that is his trademark: ‘What we really have to be careful about is building a small business by starting off with a big one.” Like other bank chairmen, Barrett is torn by demands from shareholders for ever-increasing returns and strident attacks on bank profits. “If I took the capital my shareholders have invested,” he says, “closed down the bank and invested the money in risk-free bonds, we’d still make $640 million. So, what management is paid for is the difference between that amount and the profit we make by running a business. And while I’m happy to tell my board of directors that we’re terrific, it really isn’t an extraordinary feat to produce $1 billion profit from assets of $160 billion.” He points out that out of every $100 million in profit, half of it goes for taxes and another 20 per cent is spent on dividends for shareholders, while the other $30 million is reinvested in the bank to launch programs like last week’s mbanx scheme. “So if you damage the bank’s profit flow,” he points out, “you’re not damaging some mythical five or six rich guys divvying up the bank profits in some imaginary Bay Street basement, but you’re hurting the pensioners, usually represented by the institutional investors.”

Barrett’s mission is to persuade Canadians that if our economies of scale can’t make us a great nation, an enlightened view of global imperatives might. He is determined to make the Bank of Montreal a leader in that quest.