A NICE WAY TO FINISH
How Bill Downe turned BMO from perceived Big Five laggard to leader
It’s a sunny, sweltering July day in London, and inside the Bank of Montreal’s low-rise offices a stone’s throw from the Bank of England and St. Paul’s Cathedral, Bill Downe has history on his mind.
Wearing a blue suit, BMO cuff links and his Order of Canada pin, the BMO chief executive is in the British capital for celebrations marking his bank’s 200th anniversary and its long legacy in the U.K.
BMO became Canada’s first bank in 1817 — a full 50 years before the Dominion of Canada came to be — and began doing business in London a year later. It opened a permanent office in London in 1870, and continued to extend its reach across the globe as the principal agent for a united Canada.
While most of the artifacts tracing the bank’s history now sit in a climate-controlled vault in Montreal, some are on display here: A Bank of Montreal note from before the Bank of Canada assumed the exclusive right to issue Canadian currency; a weathered pass book from the Bank of British North America (which the Bank of Montreal absorbed in 1918); a six-inch thick, leather-bound hand-written deposit ledger from 1927.
But the bank’s bicentennial isn’t the only milestone that’s approaching. In November, shortly before BMO’s official anniversary, Downe will be retiring, after more than three decades with the company, 10 of them at the helm.
“Having worked here for almost 35 years, I’ve seen lots of change, and a tremendous amount of growth,” he says, noting the timing of his departure with the bicentennial was not deliberate. “It’s a very nice way to finish what will be a long career in banking. Just a reflection that history matters, and it matters because it informs the future.”
For Downe, the last of the cohort to lead Canada’s big banks through the financial crisis, bringing the lessons of past to bear on the future will be one of his final tasks as chief executive, as he helps to chart a course for his successor, Darryl White.
“The conversation that we have been having now is that history matters, because there are analogs that you can look to,” Downe says. “Darryl has been a banker for almost three decades. He has a very strong sense of how the history of the Bank of Montreal has operated.”
While Downe sees big themes — such as the digitization of knowledge, the impact of globalization on trade and aging demographics — affecting the bank in the years to come, he is pragmatic when it comes to the risks that financial institutions face on a continuous basis.
“What are the things that have kept me up at night? They aren’t the individual event ... If you try to conduct yourself worrying about will housing prices be the next major bubble disruption, or the price of crude oil ... you would be frozen in your tracks. What good risk management does is it handicaps the probabilities and then says, worst-case, what are the defences we have? Because we can’t operate the bank with the assumption that five really bad things are going to happen.”
Take Brexit, for example. While Britain’s pending divorce from the European Union has some Londonbased financial firms grappling with uncertainty and the media up in arms, Downe is matter of fact.
“Adjustments will be made,” he says, when asked to contemplate what a “hard” Brexit, restricting the movement of people and goods, might mean for BMO. Downe reckons that it could take as long as five to 10 years for the new landscape under Brexit to emerge, something that will provide individuals with plenty of time to retrain or relocate.
“But I think that’s really the way that the world is now,” he says. “People move between jobs, between companies. I think I moved my family eight times in my banking career.”
Downe started at the Bank of Montreal in 1983 as a credit analyst in Houston before moving on to Denver and Chicago. He continued to move up the management ranks and, in 2001, was named deputy chair of BMO Financial Group and chief executive officer of BMO Nesbitt Burns. He stepped into the role of CEO in 2007, just as the bank was slashing 1,100 jobs and fending off questions about a natural-gas trading scandal that cost it approximately $850 million. BMO’s stock was underperforming and the bank was perceived to be a laggard.
And things were about to get worse: fallout from the U.S. subprime mortgage collapse soon rattled the global financial system.
In Downe’s first two years as chief executive, the bank saw several quarters of profit declines and its stock was the worst performing among Canada’s Big Five publicly traded banks during that time.
But the crisis also gave Downe an opportunity to show his mettle and make an impression on his peers.
Gord Nixon, chief executive of the Royal Bank of Canada from 2001 to 2014, says it was during this economic tumult that Downe “really stepped to the fore.” At one point, the heads of all of Canada’s big banks would meet as often as daily with the Department of Finance and the Bank of Canada, and Downe provided a key perspective, Nixon says.
“He was very attuned to what was happening in the United States because of his role on the Fed board, and his history in the United States,” Nixon says in an interview. “And so, during that period of time, I would say that Bill really showed some good leadership for the country, as well as for his institution.”
By June 2010, BMO had rebounded to become the best-performing Canadian bank stock and was posting record second-quarter profits.
In December of that year, as some of BMO’s peers were still treading cautiously in the wake of the crisis, Downe announced the bank’s plans to buy Wisconsin-based lender Marshall & Ilsley Corp. for US$4.1-billion.
It was the first blockbuster deal for a Canadian bank post-crisis, and BMO’s biggest acquisition since the 1980s.
Analysts at the time were generally skeptical of the deal, but it proved to be a “key decision milestone” for Downe, and gave BMO much-needed scale in the U.S., says Meny Grauman, an analyst with Cormark Securities.
That purchase allowed BMO to jump-start its U.S. operations, which had stagnated relative to its peers despite its purchase of Chicago-based Harris Bank in 1984.
“The timing of the deal proved to be very prescient, and so, all around that has been a home run,” Grauman says.
“You can call that a transformational deal for BMO in the U.S., shortly after the financial crisis, which took a little bit of courage. Hindsight makes it an easier decision, but at the time, there were some question marks.”
The change at BMO under Downe is borne out by the numbers. When he took the top job on March 1, 2007, its market capitalization was about $30 billion. Now, it is more than double that, closing in on $63 billion.
“Bill was always a fierce competitor, as was his institution,” says Nixon, who describes his contemporary as smart and level-headed.
“But at the same time, he became a good friend, and someone that as I say I developed a lot of respect and admiration for.”
Nixon says a chief executive should “leave a campsite in better shape than they found it.”
“Clearly, I would describe Bill as having done that at the Bank of Montreal …. He’s leaving it in much better shape.”
Under Downe, BMO has also shaken off the market perception of being behind the curve, says Grauman.
“To some extent, Darryl is getting the benefit of transitioning at a time when BMO is on the upswing,” he says. “In and of itself, that is the challenge. There (are) no easy quick fixes for a new person to come in and quickly, meaningfully change the strategy and meaningfully improve performance.”
He was very attuned to what was happening in the United States because of his role on the Fed board, and his history in the U.S.