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Fitch Affirms Bank of Montreal & Harris Bankcorp; Outlook Stable

CHICAGO, Nov 12, 2010 (BUSINESS WIRE) -- Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings (IDRs) of Bank of Montreal (BMO) and its affiliates Harris Bankcorp and Harris N.A. The Rating Outlook remains Stable. A complete list of ratings follows at the end of this release.

The affirmation reflects BMO's good capitalization, diverse franchise, and sound financial fundamentals. BMO remains the fourth largest Canadian bank with a coast-to-coast branch footprint. In addition to Canadian retail and commercial banking, its operations include capital markets, investment banking operations, asset management and insurance. BMO also owns Harris Bankcorp, Inc., parent of Harris N.A., a U.S. based regional bank headquartered in Chicago. The depth of this franchise gives BMO a diverse and stable earnings mix.

BMO also benefits from the better performance of the Canadian housing sector and overall economy throughout the financial crisis. The Canadian mortgage market did not experience suffer the excesses of the U.S. mortgage market and as a result Canadian banks have tended to outperform their international peers, both in the U.S. and abroad. In addition, Harris' exposure to subprime U.S. mortgages and high loan-to-value (LTV) home equity loans was relatively well-controlled.

Earnings for the first nine months of 2010 have rebounded, with BMO recording a return on average assets (ROAA) of 0.70%, as compared to 0.34% in the prior year period. The improvement is the product of solid revenue growth, good expense control, and sharply lower loan loss provisions. Asset quality has also improved, with gross impaired loans declining to 1.78% of gross loans and acceptances, down from 1.94% at year-end 2009.

Liquidity remains comfortable with a large portion of total assets in cash and liquid securities. BMO benefits from a solid funding base, including a sizeable amount of retail deposits. In addition to its Canadian retail franchise, BMO also has a U.S. based retail franchise from its ownership of the Chicago-based Harris Bankcorp.

BMO's Tier I ratio of 13.55% has improved sharply during 2010 due to good earnings retention and declining risk weighted asset levels. Capital levels compare well to international peers. Although BMO has issued both preferred shares and innovative Tier 1 instruments, the bulk of Tier I capital remains common equity.

In light of the improving earnings and asset quality performance, the Rating Outlook is Stable. BMO's ratings have limited upside, since they are already higher than at most North American financial institutions. An unexpectedly large increase in loan, trading or other operational losses could result in downward rating pressure.

The IDRs and debt ratings of Harris Bankcorp and Harris N.A. are linked to those of BMO in light of Fitch's view of the parent's ability and willingness to provide financial support in a crisis scenario. The Individual rating of 'B/C assigned to both Harris entities is one notch lower than that of parent BMO.

This rating reflects somewhat elevated problem asset levels and earnings that remain near breakeven. Further progress in improving asset quality and stronger earnings performance could put upward pressure on Harris Bankcorp's and Harris N.A.'s Individual ratings. This rating would come under downward pressure if Harris were to incur significant operating losses or to experience an unexpected surge in problem asset levels.

Fitch has affirmed the following ratings: Bank of Montreal --Long-term IDR at 'AA-'; --Short-term issuer rating at 'F1+'; --Senior unsecured debt at 'AA-'; --Subordinated debt at 'A+'; --Commercial Paper at `F1+'; --Individual at 'B'; --Support at '1'; --Support Floor at 'A-'.

Harris Bankcorp, Inc.

--Long-term IDR at 'AA-'; --Short-term Issuer rating at 'F1+'; --Individual at 'B/C'; --Support at '1'.

Harris National Association --Long-term IDR at 'AA-'; --Long-term deposits at 'AA'; --Short-term issuer rating at 'F1+'; --Short-term deposits at 'F1+'; --Individual at 'B/C'; --Support at '1'.

BMO Subordinated Notes Trust --Subordinated debt at 'A+'.

BMO Capital Trust A BMO Capital Trust B BMO Capital Trust C BMO Capital Trust D BMO Capital Trust E --Preferred stock at 'A'.

BMO Capital Trust II --Preferred Stock at 'A'.

Additional information is available at www.fitchratings.com Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 16, 2010); --'Equity Credit for Hybrids and Other Capital Securities' (Dec. 29, 2009).

Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685 Equity Credit for Hybrids and Other Capital Securities: Market Feedback and Fitch's Responses http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=291784 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.

PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

SOURCE: Fitch Ratings CONTACT: Fitch, Inc. Primary Analyst David Spring, +1-312-368-3194 Senior Director 70 W. Madison Street Chicago IL 60602 or Secondary Analyst Sharon Haas, +1-212-908-0362 Managing Director or Committee Chairperson Thomas Abruzzo, +1-212-908-0793 Managing Director or Media Relations Brian Bertsch, +1-212-908-0549 brian.bertsch@fitchratings.com Copyright Business Wire 2010 -0- KEYWORD: United States

North America

New York INDUSTRY KEYWORD: Professional Services

Banking

Finance SUBJECT CODE: Bond/Stock Rating