Friday, June 08, 2007

BMO Credit Rating Cut by S&P on Trading Loss

Bloomberg, Doug Alexander, 8 June 2007

Bank of Montreal, Canada's fourth-largest bank, had its credit rating cut by Standard & Poor's Rating Services because of weak risk management that led to the biggest commodities trading loss for a Canadian bank.

The debt rating for the Toronto-based bank was cut to A+ from AA-, the credit-rating company said today in a statement. That's the first S&P downgrade for the bank in 20 years.

``We believe that the overall stature of the bank's risk governance in market risk is weak, and BMO must give thought to ways of strengthening this,'' S&P said in the statement.

Standard & Poor's said on May 17 it was reviewing the bank's operations after the lender reported pretax trading losses of C$680 million ($641 million) from trading natural-gas options.

The losses were equal to 12 percent of the bank's net income last year, and ``does not reflect BMO's stated strategy of being a low-risk bank,'' S&P said.

The debt rating company also cited increased competition at Bank of Montreal's Canadian and U.S. consumer banks as another reason for the downgrade. The bank has lost market share for mortgages and deposits in Canada, while profit growth has slowed in the U.S., S&P said.

The last time Standard & Poor's reduced the bank's rating was in May 1987, according to Bloomberg data. The downgrade puts Bank of Montreal on par with Canadian Imperial Bank of Commerce with the lowest debt rating among Canada's five biggest banks.

``It's still a very strong rating,'' Bank of Montreal spokesman Ralph Marranca said today in an interview.