BMO Falls as Restatement Seen Akin to Cutting $1 Billion Capital

  • Bank of Montreal says CET1 ratio at July’s end was 10%
  • Restatement means BMO has lowest CET1 ratio among Big 5 banks

Bank of Montreal fell the most in two months after restating its regulatory capital ratios for the first three quarters of the year, a move one analyst says is akin to erasing C$1.3 billion ($1 billion) of excess capital at Canada’s fourth-largest lender.

The shares slid 1.3 percent to C$84.72 at 9:38 a.m. in Toronto, the most intraday since July 27 and the worst performance in the eight-company S&P/TSX Composite Commercial Banks Index. The stock has gained 8.5 percent since Dec. 31.

Bank of Montreal’s Basel III Common Equity Tier 1 ratio, an international measure of capital strength, is 10 percent for the third quarter, down from 10.5 percent for the period ended July 31, the company said Tuesday in a statement. The lender also restated its CET1 ratio for the first quarter, to 10 percent from 10.1 percent, and the second quarter, to 9.7 percent instead of 10 percent.

“This adjustment is tantamount to wiping out C$1.3 billion of excess capital for the bank," Canaccord Genuity analyst Gabriel Dechaine said Tuesday in a note to clients, noting that the amount could have been used to buy back as many as 15 million shares or 2 percent of stock outstanding. “We can simply translate the elimination of C$1.3 billion of excess capital into forgone capital deployment upside."

Bank of Montreal’s regulatory strength now lags behind its domestic peers. Canadian Imperial Bank of Commerce, the country’s fifth-biggest lender, has the highest regulatory capital ratio, at 10.9 percent at the end of July, followed by Royal Bank of Canada, the nation’s largest lender, and No. 3-ranked Bank of Nova Scotia with 10.5 percent. Toronto-Dominion Bank, the second-biggest Canadian lender, has a regulatory capital ratio of 10.4 percent.

“We determined a need to amend our capital ratios and are correcting the record," Bank of Montreal spokesman Paul Gammal said. “There is no change to net income or shareholders’ equity and we are well capitalized."

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