UPDATE: Bank Of Montreal Sees Pickup In US Midwest Business Activity

Canada's Bank of Montreal (BMO) is seeing an increase in business activity among its clients in the U.S. Midwest, Chief Executive Bill Downe said Wednesday.

BMO, which owns Chicago-based Harris Bank and agreed to buy Milwaukee, Wis.-based Marshall & Ilsley Corp. (MI) in December, is seeing a pickup in U.S.-China trade finance activity as China "quietly" opens up access to U.S. companies, Downe said.

He was speaking at the Morgan Stanley Financials Conference in New York.

In the last three months, "what the Chinese are doing is they are opening up, quietly opening up access to their markets to U.S. producers and our clients are actively engaging in that regard," he said.

About 85% of BMO's revenues in China are from U.S. companies doing trade finance, he said.

Bank of Montreal in October incorporated in China. Last month, it began settling transactions demoninated in yuan for North American corporate clients, enabling them to pay their China-based suppliers directly in local currency.

Downe also said he's more optimistic about the economic recovery than most economists, though commercial real estate activity in the U.S. "is standing still."

"We're starting to see a lot more conversation around capital expenditures," he said.

Clients are increasing their credit lines, although they haven't started using them. But Downe expects that to change as merger-and-acquisition activity heats up this year.

"When I look at the M&A pipeline, that's really what gives me the optimism that the commercial banking business is going to get some legs," he said.

It's "more evident in the U.S. than Canada," he added.

Clients in the U.S. Midwest "are thinking about export markets very actively," and "obviously the dollar has not hurt them in the same way as it's hurt the European manufacturers," he said.

The bank's U.S. portfolio mix is 44% consumer and 56% commercial and corporate. Commercial real estate represents 10% of its U.S. loan book and 2% of the bank's total loans. "There is a credit recovery underway and we have confidence in the overall positive trend that we're seeing," he said.

Downe said BMO will continue to make U.S. retail bank acquisitions.

"We have a lot of fill-in opportunities where M&I is," he said.

BMO aims to be one of the top-three banks in its markets, he said, adding that he sees a lot of revenue growth opportunities.

The gross domestic product of the six Midwest U.S. states where BMO will have a significant footprint equals that of Canada's, he pointed out.

"We have effectively doubled the size of our domestic market," he said.

Toronto-based BMO, which agreed to buy M&I in December in a $4.1 billion stock swap, will have 686 U.S. branches when the deal closes, compared to 910 in Canada. The transaction is expected to close before July 31.

In Toronto Wednesday, BMO is up 11 Canadian cents to C$58.24.

-By Caroline Van Hasselt; Dow Jones Newswires; 416-306-2023; [e-mail]