BMO Counterparty Ratings Downgraded by S&P; Preferred Share Rating Unchanged

S&P earlier placed BMO’s ratings under Credit-Watch Negative, following revelations that management had not heard of the concept of “Separation of Function”.

S&P has now:

lowered its short- and long-term counterparty credit ratings on Bank of Montreal (BMO; TSX: BMO) and its related subsidiaries to ‘A+/A-1’ from ‘AA-/A-1+’. At the same time, Standard & Poor’s removed the ratings from CreditWatch with negative implications, where they were placed May 17, 2007. The outlook is stable.

The downgrade reflects the weaknesses Standard & Poor’s found within the bank’s risk management functions, the impact of competitive pressures on its domestic and U.S. personal and commercial (P&C) bank, the bank’s lower level of risk-adjusted earnings as compared with its North American peers, and smaller retail funding base which incrementally increased the bank’s liquidity risk position.

BMO has the following preferred share issues outstanding: BMO.PR.G, BMO.PR.H, BMO.PR.I, BMO.PR.J & BMO.PR.V.

The preferred share ratings were left unchanged, but this is a major and permanent (well … long-lasting!) black eye for the bank – and unless management quickly reviews its internal controls, could be indicative of worse losses to come. Which will, of course, be blamed on Rogue Traders … not management.

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