| BMO Financial Group Issues Update On Commodities Trading Losses
TORONTO, May 17, 2007 – BMO Financial Group (TSX: BMO, NYSE: BMO) today issued an update on mark-to-market commodities trading losses in the natural gas portfolio. Following the receipt of an independent assessment of BMO’s natural gas commodities trading policies and practices, including valuation methodology, the company moved quickly to determine the effect on its financial statements. Based on the information available at that time, the company issued a press release on April 27, 2007, announcing estimated mark-to-market commodities trading losses of $350 million to $450 million pre-tax. After April 27, new information was obtained and BMO determined that a more appropriate market-based methodology should be used for this portfolio. This change, together with increased concerns with the reliability of quotes received from its principal broker, used in its first quarter valuation, led BMO to conclude that losses should be recognized partially in both the first quarter and second quarter of Fiscal 2007. The impact of this change did not have a material impact on periods prior to the first quarter of 2007. The effect is total
mark-to-market commodities trading losses as at April 30, 2007, of
$680 million pre-tax
or $327 million after tax and
incentive compensation adjustments ($0.64 per share). Of this amount,
$509 million pre-tax or $237 million after tax and incentive compensation
adjustments ($0.46 per share) will be recorded in BMO’s first quarter
of Fiscal 2007 and $171 million pre-tax or BMO’s commodities portfolio is now more appropriately marked-to-market as of April 30, 2007, based on a completed valuation review. However, BMO is continuing its investigation of the facts and circumstances surrounding these mark-to-market commodities trading losses including a review to determine whether any potential irregularities in trading and valuation took place. Bill Downe, President and Chief Executive Officer, BMO Financial Group, commented, “Since our initial announcement on April 27, BMO and our external advisors have continued to investigate this matter. This has provided additional insight into the current circumstances, helped guide the actions we have taken and those we will take going forward. BMO has reduced the risk in this portfolio by approximately a third from its peak.” BMO has taken a number of steps related to these mark-to-market commodities trading losses:
Given the size and complexity of the portfolio, it could experience subsequent significant gains and losses due to repositioning of the portfolio and market volatility. However, the ultimate realization over time is not expected to generate a large economic gain or loss on this portfolio. BMO’s Tier 1 capital ratio remains strong and the impact of the losses announced today will be modest at approximately 20 bps on its ratio. BMO will disclose the risk reduction in this portfolio through the normal reporting process. CAUTION REGARDING FORWARD-LOOKING STATEMENTS By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic conditions in the countries in which we operate; interest rate and currency value fluctuations; changes in monetary policy; the degree of competition in the geographic and business areas in which we operate; changes in laws; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital market activities; the possible effects on our business of war or terrorist activities; disease or illness that impacts on local, national or international economies; disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes. We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 28 and 29 of BMO’s 2006 Annual Report, which outlines in detail certain key factors that may affect BMO’s future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf. Assumptions about the performance of the natural gas and crude oil commodity markets and how that will affect the performance of our commodities business were material factors we considered when establishing our expectations of the future performance of the portfolio discussed in this release. Key assumptions included that commodity prices and implied volatility would be stable and our positions would continue to be managed with a view to reposition the portfolio to a lower and sustainable level. - 30 - Contacts:Media Relations Investor Relations |