TORONTO - There may be a U.S. credit crunch, but don't blame Matthew W. Barrett.

Bank of Montreal's chairman and chief executive is merrily pumping out new loans south of the border. In the past 12 months alone, his U.S. corporate loan portfolio has grown by a hefty 28%, or $1 billion.

And the jaunty executive isn't exactly dallying on his home turf: In the face of a sharp Canadian recession that has idled almost 12% of the work force, Bank of Montreal has boosted its residential mortgages by 18% and its commercial loans by 15% in the past year.

Few banks would dare grow this rapidly even in good times. Fewer still are the U.S. superregional and money-center institutions that could do so without running afoul of regulatory or capital constraints.

But Bank of Montreal, Canada's third-largest bank, with $83 billion in assets ($104.8 billion Canadian), plays by a different set of rules.

"We're risk-takers willing to do things differently," Mr. Barrett says.

As chief executive of one of the six banks that control nearly all of the Canadian banking market, Mr. Barrett has economic and social muscle that gives him the clout of a quasipublic official. Moreover, with the exception of Chicago affiliate Harris Bankcorp, his company is immune from U.S. leverage capital rules that otherwise would stop him cold.

Return on Assets

He must have this growth and more if he is to achieve his lofty goals. Not content with merely restoring Bank of Montreal, which was rocked by the Latin American lending crisis in the late 1980s, Mr. Barrett has set his sights on preeminence.

The stakes are high.

Even as Bank of Montreal's biggest loan expansion in a decade gains momentum, defaults on big-ticket corporate and realty loans are mounting, raising the question of whether the company's underwriting skills are as good as Mr. Barrett says.

And fixing what's broke - Mr. Barrett's specialty - may prove the easy part in his drive for "top tier" performance. The company, which despite its name operates out of Toronto, still has a way to go just to catch up with some of its rivals. Bank of Montreal's highest return on assets over the past decade was 0.63%, while some competitors have exceeded 1%.

But if ever a banker seemed up to the challenge, it is Mr. Barrett. Energetic and charming, the native of Ireland declares: "We're a young team, irreverent and full of energy."

Mr. Barrett, 48, who began his career at the bank cleaning ink-wells more than 30 years ago, appears to be a shrewd strategist. On almost 400 occasions since Aug. 1, 1990, Bank of Montreal led the industry in cutting the prime interest rate.

Was Mr. Barrett sacrificing profitability in order to gain customers? Hardly. Largely overlooked in the marketing ballyhoo was the fact that inflation was falling faster than interest rates. Thus, new customers locking in lower nominal borrowing rates were in fact locking in high real rates.

"Bluntly put, the cost of borrowing is still high despite steep interest rate declines over the past two years," said Bank of Montreal chief economist Lloyd C. Atkinson in a recent report.

And in at least one important area of portfolio growth - that of residential mortgage lending - it appears that Mr. Barrett is not taking undue risk: Government guarantees and private mortgage insurance back 30% of the portfolio; the remainder was booked at a maximum loan-to-value ratio. of 75%.

Still, the $52 billion of average loans that Bank of Montreal held during the quarter ended July 31 was up a whopping 23.4% from the same period two years earlier. And even more growth is on the way.

Work Force Largely Intact

The expansion is an integral part of Mr. Barrett's turnaround strategy. Believing that Bank of Montreal can recapture market share surrendered during earlier troubled years, Mr. Barrett has kept the bank's work force largely intact.

But asset growth permitted a surge in productivity: The bank held $2.6 million of assets for each employee at the end of the third fiscal quarter, up 32% from $1.94 million per employee two years ago.

The growth has permitted a second and perhaps more dangerous type of productivity, however, and that is the leveraging of loan-loss reserves.

Two years ago, Mr. Barrett could have deducted an amount equaling 1% of performing loans - regarded by some analysts as a minimum cushion against ongoing risk - from loss reserves and still had reserves equaling 64% of nonperforming loans.

By July 31, though, the bank's adjusted reserve ratio had sunk to 34.5%. Regaining the former adjusted reserve position would require a loss provision of $409 million - equal to 20% of Bank of Montreal's pretax income over the past 24 months.

Aside from the contribution of loan expansion to this situation, Bank of Montreal has suffered a 39% rise in nonperforming assets over the past 24 months.

Mr. Barrett is steadfast in saying that Bank of Montreal is a conservative underwriter. His evidence: Credit quality, though clearly hurt by the U.S. and Canadian recessions, is still-better than that of Canadian rivals.

One reason nonperforming assets are rising so quickly, he says, is the bank's aggressiveness in recognizing loan problems - such as with Bramalea Ltd. and Olympia & York - as they surface. And he says the mountain of new loans made over the past two years are of better quality than the overall portfolio.

Realty Loan Frenzy Avoided

Taking a somewhat different stance is Michael Goldberg, a banking analyst with RBC Dominion Securities. In an August report, he says Bank of Montreal's credit quality is holding up better than that of Canadian rivals only because the distractions of a troubled Latin American portfolio prevented the bank from fully participating in the commercial realty loan expansion of the late 1980s.

And if the Canadian recession lingers longer than expected, Mr. Goldberg says, today's aggressive loan growth at Bank of Montreal "could produce more problem loans than anticipated."

Mr. Barrett says Bank of Montreal is making rapid inroads into the U.S. because so many American banks are distracted by credit woes or mergers. "As unfair as it may sound, it's a good opportunity to try to take advantage of the situation," he says. Most of the growth consists of loans to large corporations.

So far, Mr. Barrett appears to be keeping shareholders satisfied, although even here he does enjoy a somewhat privileged status. With the majority of the stock owned by private investors and listed only in Canada, Mr. Barrett is not subject to the withering pressures of the U.S. financial markets.

Though the annualized return on assets during Bank of Montreal's first three fiscal quarters was a soft 0.62%, the company's low 4% ratio of common equity to total assets translates into a 14.41% annualized return on average equity.

While this clear reliance on financial leverage might disturb a purist, it is helping to sustain a rally in the stock of Bank of Montreal, which is trading at a 26% premium over book. That compares with an average 13% premium for all of Canada's big banks.

A Shift in Focus

Interestingly, after gaining the helm in July 1989 the executive crafted a strategy only 40% weighted toward the achievement of financial goals.

"The proxy for future profitability is customer satisfaction," Mr. Barrett says, "and that can't be achieved without high degrees of employee commitment, competence, and cost effectiveness. And those qualities won't walk unless the bank has a good image and reputation."

At the company's annual shareholder meeting, Mr. Barrett focused most of his headline-garnering address on government fiscal policy.

Earlier, president and chief operating officer F. Anthony Comper concluded in a widely publicized report that Bank of Montreal was doing a "dismal" job of promoting women, and committed the bank to "dramatic" reform.

Positioning Bank of Montreal as an institution "transcending purely the bottom line," Mr. Barrett says, "is trying for a fit between what we do for a living and something society is interested in - and frankly, all of that is another definition of marketing."

Inside the bank, Mr. Barrett has been hammering at the walls erected between divisions by his predecessor, William Mulholland.

Like a Rowing Team

Treasurer Yvan Bourdeau recalls emerging from his first of the many interdisciplinary meetings prescribed by Mr. Barrett "aghast" at how prior years of isolation had estranged many officers from each other. Now Mr. Bourdeau likens himself to a member of an Olympic rowing team: "I'm definitely more proactive," he says.

Decrying the "nine layers of management" that stood between him and the company's 32,212 employees, Mr. Barrett consigned a number of career bureaucrats to the field.

Separately, Mr. Barrett founded a development unit that will provide each employee at least five days of training a year. And he installed internal and external feedback mechanisms on performance. "We are obsessive about measurement," he says.

Indeed, Mr. Barrett seemingly brings an obsessive energy to just about anything he tackles. But he makes no pretense that his inspirations are a substitute for flawless execution.

In the midst of Bank of Montreal's expansion, "my scorecard is the employees' scorecard," he says. "If they succeed, I succeed. If they don't succeed, I fail."

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