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Bank of Montreal CEO says economic recovery marks perfect time for growth

Bank of Montreal (TSX:BMO) is scouring U.S. markets for potential expansion opportunities as it looks to boost its operations beyond the Midwest, chief executive Bill Downe says.

Bank of Montreal (TSX:BMO) is scouring U.S. markets for potential expansion opportunities as it looks to boost its operations beyond the Midwest, chief executive Bill Downe says.

At the company's annual meeting in Winnipeg on Tuesday, Downe said BMO could open new branches or launch takeovers as it works to grow itself in the United States while some of its U.S. competitors focus on financial problems.

Earlier this year, Downe said BMO is eyeing acquisition opportunities in U.S. retail banking sector, pegging the Chicago area where the bank has a major presence with its Harris Bank subsidiary as being of particular interest.

On Tuesday, he broadened the scope, saying in an interview that "expanding the branch footprint adjacent to current markets is a very prudent thing to do."

Downe named several U.S. cities where Harris Bank has a minor presence - including Seattle, San Francisco, Los Angeles, Phoenix, Tucson and three areas of Florida - as places for potential growth.

"There's an attractiveness to expanding in adjacent markets because it doesn't stress your management," he said.

Several of those cities are located in the Southwest, an area that's been ravaged by the subprime mortgage crisis and caused many banks to rein in their growth plans.

Canadian banks have fared better than most international financial institutions during the global economic downturn, which has increased the likelihood that they could scour the market for potential acquisitions.

TD Bank (TSX:TD) and Royal Bank (TSX:RY) also have operations in the U.S., though last month executives at both banks said they were cautious about expanding in the current economic climate.

Downe said Canadian businesses - not just the banks - should use the domestic economic recovery to boost their own productivity and operations outside the country, or they risk being left behind.

He said that the relative strength of the Canadian economy has given the country a rare competitive advantage.

"The call to reinvest, to think about expanding markets, is necessary because if we don't do that, the consequence will be that our GDP will grow more slowly than the United States," he said.

"The global recovery is going to be a business-led recovery, and some competitors are going to end up in a much stronger position because of their participation - and some are going to be left behind."

Downe suggested Canadian companies should take an early cue from major changes in demographics, productivity and shifting markets around the world, particularly in Asia.

Over the next decade, Asia will account for a significantly higher portion of global GDP, which will be offset by a decline in Europe and Japan of almost the same magnitude, he said. Downe believes it's up to North American businesses to adapt to grow their own economies.

"I have less concerns about the U.S. economy because I think they have had a better record of dealing with global competition by boosting their productivity," he said.

Canadian businesses have been strengthening ties with Asian nations, particularly China, in recent years. Last December, Prime Minister Stephen Harper visited both China and South Korea.

Growth in China, however, has not been without its hitches. The country operates on strict business rules and regulations, and trading partners have pressured the country to loosen controls and allow the value of the yuan to rise.

For many Canadian companies, slow and steady has been the rule for growth in China because business relationships are often almost as much about trust as they are about the bottom line.

At BMO, Downe is playing by similar rules.

"The success that we've seen in China is because we have been consistent over a long period of time, not because we have stepped hard on the accelerator," he said.