Watching the Weather
Summer is here, and it promises to be a hot one. While this brings the opportunity to enjoy the outdoors, have a backyard barbecue, or escape to the lake, it also brings the risk of turbulent weather. But risks are a part of life, and a part of doing business. How you approach these risks, and whether you take them or mitigate them, can make all the difference.

In this issue, we take a look at risk and the corporate treasurer. As you know first-hand, the role of the corporate treasurer is under increasing pressure and scrutiny. You are the custodian of critical information and financial assets, and have therefore become a cornerstone of the organization’s business and risk management strategy. Today’s treasurer must effectively balance traditional cash management functions with growing strategic, risk management, regulatory, technological and reporting demands.

We spoke with professionals across our own organization – from our Economics, FX, Technology and Treasury groups – to hear what they say about managing and understanding risk in this volatile market environment. We have also provided updates on our latest innovations and product enhancements, such as our new safekeeping platform, international ACH and ACH debit block services. And, we have produced an update on the new suite of global treasury services that allow you to operate on the ground in the U.S., Canada and the Euro zone through your relationship manager here. From all of us in Global Treasury Management, we hope you enjoy the great summer weather.

Marnie Kinsley
Executive Managing Director
Head of Global Treasury Management
BMO Capital Markets
marnie.kinsley@bmo.com

Planning & Communication Are Key: BMO Treasurer
What does a corporate treasurer need to be aware of in today’s financial environment? We spoke with Tom Bermingham, Acting Treasurer, BMO Financial Group, for his perspective.

Q: There’s lots of talk lately about the treasurer’s role changing as risk management becomes a top concern. Do you see that happening?

Tom Bermingham: It’s certainly true that the field of risk management has evolved and the area is now a key function in corporations. The treasurer’s role has always been to understand and manage risks in areas such as interest rates, foreign exchange rates, cash flows and funding. What has changed is the degree of integration between treasury risk management and credit, operational and strategic risk management.

This integration gives corporations better enterprise-wide risk management capabilities, including the ability to analyze the impact of emerging environments on the entire corporation, and to stress-test business plans.

Q: What does a treasurer need to do differently at the strategic level as risk management becomes more important?

Tom Bermingham: Treasurers need to be part of the risk management team. With a treasurer on the risk management team, a corporation benefits from both the ability to perform enterprise-wide risk management and from the treasurer’s insights into financial markets, business operations and strategic plans.

Q: What can a treasurer do day-to-day to help mitigate risk?

Tom Bermingham: One of the more important things is to communicate on a regular basis with business groups about changes in financial markets that will affect the pricing of their products and services. This goes a very long way towards reducing the risk of lost revenue opportunities.

Know Your FX Risk
As companies look beyond traditional borders for growth, foreign exchange risk is something treasurers should be mindful of. Treasury Management Quarterly spoke with Ralph Delzenero, Director, BMO Capital Markets FX Sales in Chicago, for his take on what treasurers need to know.

Q: Is it true that treasurers are making FX risk a bigger priority lately?

Ralph Delzenero: The most common one is, without a doubt, not knowing your FX risk exposure. If the markets shift, if the U.S. dollar suddenly recouped some of its value for example, and you haven’t planned for it, then there’s an increased chance you could miss your budgets. Instead, you should closely monitor your FX exposure and make sure it fits a risk profile that makes sense for your company.

Another common error by treasurers is reacting too aggressively to shifts in exchange rates. I always recommend they develop an FX risk management policy that is systematic. That way, you’ll have a plan that will help you resist the temptation to make bad risk management decisions based on FX rates. And of course, you should review that plan every quarter with your bank.

The good news for your readers is that there’s a strong connection between our FX group and Global Treasury Management. We’re even on the DirectLine® portal. All clients have to do is talk to their Relationship Manager, and we can arrange to help out.

Q: Any parting advice for readers?

Ralph Delzenero: It’s impossible to make a general call because every client’s needs are different. But I would certainly recommend this: Know your FX risk and have a systematic approach in place to manage it. That way, you won’t be caught with receivables or payables you didn’t hedge if currency values suddenly change. It’s basic advice, but it works.

Credit Environment Slow to Improve
The U.S. credit environment has improved somewhat since the Bear Stearns takeover in mid-March, but to say it’s anywhere close to normal would be wrong. Corporate credit spreads, though they’ve narrowed significantly since the winter, remain wider than normal. Bank write-downs of subprime-related debt are still sizeable, though they have become smaller.

In the last issue of this newsletter, we said that turmoil in credit markets would persist until mortgage defaults in the U.S. stop rising. Since then, delinquency and foreclosure rates hit record highs in the first quarter and bank credit standards in the U.S. have continued to tighten.

Housing prices are still falling sharply, down 14 per cent year-over-year, mainly because of the large overhang of unsold homes on the market. Until house prices stabilize, credit markets will remain stressed and there will be a risk of a deeper U.S. recession. We see this risk persisting for most of this year.

Canada remains a bright spot, with credit markets that are closer to normal than in the U.S. Short-term spreads are almost back to long-term averages. In fact, there is little evidence that the global credit squeeze has affected Canadian borrowers, since personal and residential mortgage growth remains very strong.

-BMO Capital Markets Economics

Barrie Computer Center Has Clients Covered
It is a model of forethought: It has its own water supply; it is hooked up to two separate power grids as well as generator power; and it is fully equipped with conferencing technology. While it may sound like a cold-war-era bunker, it is in fact BMO Financial Group’s state-of-the-art Barrie Computer Center, which opened its doors two years ago in Barrie, Ontario, north of Toronto.

The Barrie Computer Center was built to complement our existing data centers and provide full support for our customers worldwide in the event of a disruption. It is one of only 14 sites in North America that has received the Tier 4 rating for facility infrastructure by the Uptime Institute, a leading consultant to Facilities and Information Technology organizations.

The Tier 4 rating means that if the power supplies from both grids become unavailable, the facility will run on batteries for approximately 15 minutes while the generators come on-line. Once going, the generators can run for six days before needing fuel. If the complex’s cooling system fails, cold water tanks can cool the facility for 15 minutes until the back-up system takes over. This process would be transparent to our clients.

Ideally, the back-ups and contingencies that are part of the Center’s design will never be put to practical use. But in the event that they’re needed, our clients can be assured that BMO’s technology is among the most advanced – and resilient – anywhere.

Barrie Computer Center

• Total area: 327,000 s.f.
• Up to 620 workstations
• Electrical capacity of 100 watts/s.f., with high density bays for 200 watts/s.f.
• 1,760 batteries, weighing 550 tons
• Enough cooling capacity to provide air conditioning for 2,300 homes

Wire Payments Receive Backup
BMO Capital Markets processes wire payments using a fully redundant mainframe system. In the event that a contingency is declared, the system will not be down for more than two hours.

We also have fully redundant SWIFT capabilities at both of our computer centers, with separate communication networks, power grids, and SWIFT-related systems.

From a customer perspective, DirectLine® wires are also fully redundant. In the event of a contingency, clients would experience only a brief outage. No data would be lost in such an event, as the contingency site is 'warm,' with transaction data replicated frequently.

Web Security: Be Vigilant
Every time a new security measure appears, fraudsters start looking for a way around it. In fact, to get around advanced security measures, one of the preferred techniques is to trick account holders into giving out key information. So as effective as these security measures are, you still need to be vigilant in order to protect your accounts.

“Phishing” scams are well known, but are a persistent threat. In these attacks, unsolicited emails and fraudulent websites trick customers into divulging credit card information, account numbers, passwords, or Social Security/Tax ID numbers.

The latest phishing attacks do not directly ask for personal or financial information, but instead prompt you to view a document or install a program. Doing so may install malicious software (malware) that records your keystrokes.

Other variants of the phishing attack continue to emerge. Fraudsters, posing as authorized bank personnel, are now calling or emailing, asking you to click on a link that actually downloads malware that intercepts the one-time password partly generated by a SecurID token. Another scam directs you to a fake login page that makes you wait for a few moments after you have entered your password. While you wait, fraudsters quickly use your password to log in and execute a transaction.

You can help us safeguard your accounts from fraud. Please share the above information with your team. If you receive unsolicited email claiming to be from BMO Financial Group that asks you to take this type of action, please forward the email to online.fraud@bmo.com – and then delete the email.

Staying Secure:

• Never share your user IDs, SecurID tokens, or PINs – and lock up your token when not in use
• Never give out personal or financial information when asked by unsolicited emails – BMO does not gather information this way
• Delete emails from unfamiliar sources without opening them
• Never click a link inside an email that asks you to verify your account details or personal information, to access documents, or to download software or plug-ins
• Install and update anti-virus and anti-spyware software as well as a personal firewall on your home computer
• Update your computer’s operating system and service packs
• If in doubt about phone calls, emails or text messages coming from BMO, call your Relationship Manager
• Request a free credit report from each of the major credit reporting agencies annually

BMO’s Fraud Countermeasures:

• BMO actively participates in industry efforts, such as the Financial Services Roundtable and BITS, the Financial Services Information Sharing and Analysis Center, and Canadian Financial Institutions Computer Incident Response Team
• We monitor traffic on BMO Financial Group websites for unusual activity, including access attempts from foreign IP addresses, repeated login attempts, etc.
• We flag any irregular transaction patterns for investigation
• We adopt anti-fraud practices such as deactivating idle user IDs after 45 days, making user profile changes available for administrator review, requiring new DirectLine® passwords every 90 days, setting limits on all payment types, and requiring dual authorization plus use of tokens to release funds

Committed to Our Relationships
There are many reasons why corporate treasuries change banks. Treasurers are under increasing pressure to award cash management business to their largest credit providers. Treasurers are also being asked to justify their current bank partners – often from a strategic sourcing group that categorizes banks as vendors, measuring strictly on price.

At BMO Capital Markets, we aim to keep our clients – and make it worthwhile for new ones to make the switch – by giving corporate treasurers what they’re looking for: great service and commitment to their account. The latest Biennial Survey from Phoenix-Hecht shows that we’re delivering on that promise. As primary cash management Relationship Manager, we:

• Placed in top three banks (of 18) among corporates with $100 - $500 M in revenue
• Scored better than average across all nine relationship management categories
• Earned an A+ and an A respectively for the prompt followup and overall effectiveness and knowledge demonstrated by our Relationship Managers
• Received the highest grade for relationship management in the large corporate segment. Only two other banks (of 15) rated as well

In the “large corporate” segment, BMO was one of only two banks that scored a B or above in all 43 categories (products, relationship manager and overall bank perception). More telling perhaps is that 100% of respondents said our overall quality remained consistent or improved since 2006. In the upper-middle market segment, our count of A+ and A grades was 25% higher than average.

So as you face pressure to concentrate your banking relationships, we hope these survey results underscore our commitment to client service and our ongoing efforts to help you achieve your business goals.

BMO Products Earn Top Grades
It’s not just our relationship management that is scoring well in the Phoenix-Hecht surveys. Our products and services excelled in the most recent Phoenix-Hecht Cash Management Monitor study. We earned an overall Product grade of A among large corporates.

Feature	Grade
Internet – overall features & capabilities	A
Wholesale Lockbox – speed of processing	A
Wholesale Lockbox – processing & reporting accuracy	A
Wholesale Lockbox – timeliness of receiving images	A
Balance Reporting – overall features & capabilities	A
Wires – overall features & capabilities	A+
Controlled Disbursement – timeliness of presentment notifications	A+
Controlled Disbursement – accuracy of notification	A+
Controlled Disbursement – overall features & capabilities	A
ACH – overall features & capabilities	A
Depository Services – timeliness of processing & reporting	A+

Source: Phoenix-Hecht 2008 Cash Management Monitor Quality Index Upper Middle Market

Global Services Demand Rising
Industry statistics reveal that over the next several years, payments by North American companies for work and supplies procured in Europe are expected to grow at a rate of 10 per cent per year. In fact, we have seen a 12 per cent year-over-year increase in transactions originating from foreign currency accounts.

This signals to us that many of you are looking overseas for growth opportunities, and that demand for the global services we launched in September of last year will continue to grow, despite turbulent markets. We see this as a great opportunity to support your ambitions.

What sets our global services apart is that they enable you to manage cash flow and your Canadian-dollar, U.S.- dollar and Euro payments and receivables through a single BMO Capital Markets Relationship Manager, eliminating the need to deal with separate financial institutions in each country where you do business.

You have told us that you have to be nimble in order to seize the best opportunities out there. These services help you do that, by eliminating the need to find multiple banking partners, or work through unfamiliar local requirements on your own. We take care of these complexities so that you are free to concentrate on growing your business. To learn more about our global services, contact your Relationship Manager.

BMO’s global services include:

• Wire payments
• Checking services
• ACH payments and Electronic Funds Transfers (EFTs)
• Lockbox services
• SEPA (Single Euro Payments Area) payments
• Information reporting
• Liquidity management

PRODUCT UPDATES

Preventing ACH Fraud
Payments fraud, mostly in the form of check fraud, has dogged the business world for years, and the electronic payment systems that were once seen as safeguards against fraud are becoming targets.

According to the National Automated Clearing House Association (NACHA), more than 18 billion automated clearing house (ACH) payments were made in 2007, a 12.6 per cent increase over 2006. Criminals have been able to use stolen account information to initiate fraudulent ACH payments by phone, web or at the point of sale. And unfortunately, because businesses generally have only one day for returns, you might not notice a fraudulent charge until it’s too late for recourse.

Stop Unauthorized Debits
We can help you cut the risk of ACH fraud, stopping unauthorized debits or credits with our ACH Debit/Credit Blocks and Filters. These services let you set limits on amounts and choose which incoming transactions to allow.

Notification Service

• As ACH transactions are processed, we produce a report of all debit and credit transactions
• You receive a report each time ACH transactions post, usually within an hour

ACH Credit or Debit Filters

• Lets you choose which debits or credits to allow, based on the originator and the dollar value range for each payment
• We return all transactions outside this range or from an unknown originator and send you a report

ACH Credit or Debit Blocks

• We automatically return your account’s ACH debits or credits and create a report notifying you of blocked transactions
• This highest level of security is ideal for controlled disbursement accounts

For all options, reporting is available online or via fax, usually within an hour of processing.

Positive Pay/Payee Name
Check fraud will be a continuing problem as long as tech-savvy fraudsters can get access to bank account information and forge checks. This kind of fraud disrupts business and can hit the bottom line hard. Fortunately, we can help your company reduce the risk of falling victim to check fraud.

Positive Pay
The Positive Pay service compares the check number and amount from the presented check to the issue file that you forward to us. All components must match exactly or the item is considered an exception and is flagged for your review and investigation. Exceptions are available daily on the DirectLine® portal. We have also updated our teller system with customer issue file data.

Positive Payee
The Positive Payee service compares the payee name on the presented check to that in the issue file. We send you any mismatched checks so you can make a pay/no pay decision.

These services include balancing the account, noting exceptions, reporting outstanding issue items, and listing all paid items. Thus, you get the double benefit of fraud mitigation and account reconcilement.

Securities Safekeeping Upgrades
We are committed to bringing you world-class Securities Safekeeping capabilities. Our operation centers in Chicago and Toronto provide redundancy to our technology platform, so we can offer service and support continuity throughout the settlement cycle.

In mid-2007, we introduced a new Securities Safekeeping platform that upgraded all bank processes and laid the foundation for future enhancements. Subsequent releases will deliver additional features such as real-time access to your account information via our DirectLine portal. Our securities processing services include:

• Daily security updates and market pricing
• Reporting of security holdings and pledge positions, principal and interest payment advice, transaction history, and upcoming activity
• Auto-settlement to depositories and real-time management of delivery orders, including entry, change, cancellation, reversals, repos, and turnarounds
• Electronic interfaces with depositories for delivering securities, collecting and distributing interest and principal, and monitoring corporate actions
• Daily reconciliation of income, assets and settlements
• Real-time cash availability and reporting
• Corporate actions, income collections and proxy services

What’s Next?
In November 2008, we will begin to roll out web-based access through the DirectLine® service, giving users the following capabilities:

• Trade orders, and upload templates for repetitive orders
• Pledging
• Account holdings
• Alerts and notices, including corporate action notifications
• Statements
• Flexible information reporting and a search engine with downloadable results
• Flexible administration and access controls
• 90 days historical trade and account detail

Finally, in late 2009, watch for the ability to exchange trade order and statements using SWIFT MT540-548 (settlement) and MT535-537 (reports) message types, enabling greater straight-through processing and connectivity to the SWIFT network. To learn more about our Securities Safekeeping service, please contact your Relationship Manager.

Conferences & Events

TMAC
The 26th annual conference and trade show of the Treasury Management Association of Canada (TMAC) heads east to St. John’s, Newfoundland, September 21-23. BMO Capital Markets is proud to be a sponsor of this year’s conference.

Our own Bill Brodt, Managing Director, Global Treasury Management, Chicago, is speaking on U.S. payment and automation trends that will affect Canadian treasurers. Andy Busch, Global FX Market Strategist for BMO Capital Markets, will address world events and FX risk. BMO’s Jamie Thorsen, Executive Managing Director, Foreign Exchange Products & China Capital Markets, will moderate the Economics and FX panel discussion. www.tmac.ca/conference/index.html

AFP
This year’s Association for Financial Professionals Annual Conference takes place October 19-22 in Los Angeles. In the session “U.S. and Canadian Banking: How Different Are They?” Mike Ripley, Vice President, BMO Capital Markets, will speak alongside Jacquelyn Yardy, Manager, Finance & Treasury, TransCanada PipeLines Limited, exploring the difference in clearing, payments, and reporting systems, including the impact of TECP/Check21. Andy Busch, Global FX Market Strategist, BMO Capital Markets, will provide hands-on strategies for trading profitably with decisions based on world events. www.afponline.org/pub/conf/annual_conference.html