BMO Capitalization : 2Q08

BMO has released its Second Quarter 2008 Report and Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to, in this environment!

Step One is to analyze their Tier 1 Capital, reproducing the prior format:

BMO Capital Structure
October, 2007
& April, 2008
  4Q07 2Q08
Total Tier 1 Capital 16,994 17,633
Common Shareholders’ Equity 83.8% 84.3%
Preferred Shares 8.5% 9.6%
Innovative Tier 1 Capital Instruments 14.3% 13.8%
Non-Controlling Interests in Subsidiaries 0.2% 0.2%
Goodwill -6.7% -7.9%

Next, the issuance capacity (from Part 3 of the introductory series):

Tier 1 Issuance Capacity
October 2007
& April 2008
  4Q07 2Q08
Equity Capital (A) 13,126 13,499
Non-Equity Tier 1 Limit (B=A/3), 4Q07
(B=0.428*A), 2Q08
4,375 5,778
Innovative Tier 1 Capital (C) 2,422 2,438
Preferred Limit (D=B-C) 1,953 3,340
Preferred Actual (E) 1,446 1,696
New Issuance Capacity (F=D-E) 507 1,644
Items A, C & E are taken from the table
“Capital and Risk Weighted Assets”
of the supplementary information;
Note that Item A includes Goodwill and non-controlling interest

Item B is as per OSFI Guidelines; the limit was recently increased.
Items D & F are my calculations

and the all important Risk-Weighted Asset Ratios!

Risk-Weighted Asset Ratios
October 2007
& April 2008
  Note 2007 2Q08
Equity Capital A 13,126 13,499
Risk-Weighted Assets B 178,687 186,252
Equity/RWA C=A/B 7.35% 7.24%
Tier 1 Ratio D 9.51% 9.42%
Capital Ratio E 11.74% 11.64%
Assets to Capital Multiple F 17.17x 16.22x
A is taken from the table “Issuance Capacity”, above
B, D & E are taken from BMO’s Supplementary Report
C is my calculation.
F is from OSFI (4Q07) and BMO’s Supplementary Report (2Q08)

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