{"id":2663,"date":"2008-08-26T12:03:29","date_gmt":"2008-08-26T16:03:29","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=2663"},"modified":"2008-08-26T12:03:29","modified_gmt":"2008-08-26T16:03:29","slug":"bmo-capitalization-3q08","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=2663","title":{"rendered":"BMO Capitalization: 3Q08"},"content":{"rendered":"

BMO has released its Third Quarter 2008 Report<\/a> and Supplementary Package<\/a>, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to, in this environment!<\/p>\n

Step One is to analyze their Tier 1 Capital, reproducing the prior format<\/a>:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n
BMO Capital Structure
\nOctober, 2007
\n& July, 2008<\/td>\n<\/tr>\n
 <\/td>\n4Q07<\/td>\n3Q08<\/td>\n<\/tr>\n
Total Tier 1 Capital<\/td>\n16,994<\/td>\n18,047<\/td>\n<\/tr>\n
Common Shareholders’ Equity<\/td>\n83.8%<\/td>\n83.8%<\/td>\n<\/tr>\n
Preferred Shares<\/td>\n8.5%<\/td>\n11.1%<\/td>\n<\/tr>\n
Innovative Tier 1 Capital Instruments<\/td>\n14.3%<\/td>\n13.5%<\/td>\n<\/tr>\n
Non-Controlling Interests in Subsidiaries<\/td>\n0.2%<\/td>\n0.2%<\/td>\n<\/tr>\n
Goodwill<\/td>\n-6.7%<\/td>\n-8.0%<\/td>\n<\/tr>\n
Miscellaneous<\/td>\nNA<\/td>\n-0.5%<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

Next, the issuance capacity (from Part 3 of the introductory series<\/a>):<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n
BMO
\nTier 1 Issuance Capacity
\nOctober 2007
\n& July 2008<\/td>\n<\/tr>\n
 <\/td>\n4Q07<\/td>\n3Q08<\/td>\n<\/tr>\n
Equity Capital<\/td>\n(A)<\/td>\n13,126<\/td>\n13,609<\/td>\n<\/tr>\n
Non-Equity Tier 1 Limit<\/td>\n(B=A\/3), 4Q07
(B=0.428*A), 2Q08<\/td>\n		4,375<\/td>\n5,824<\/td>\n<\/tr>\n
Innovative Tier 1 Capital<\/td>\n(C)<\/td>\n2,422<\/td>\n2,442<\/td>\n<\/tr>\n
Preferred Limit<\/td>\n(D=B-C)<\/td>\n1,953<\/td>\n3,382<\/td>\n<\/tr>\n
Preferred Actual<\/td>\n(E)<\/td>\n1,446<\/td>\n1,996<\/td>\n<\/tr>\n
New Issuance Capacity<\/td>\n(F=D-E)<\/td>\n507<\/td>\n1,386<\/td>\n<\/tr>\n
Items A, C & E are taken from the table
\n“Capital and Risk Weighted Assets”
\nof the supplementary information;
\nNote that Item A includes Goodwill and non-controlling interest<\/em>

\nItem B is as per OSFI Guidelines; the limit was recently increased<\/a>.
Items D & F are my calculations<\/em><\/td>\n<\/tr>\n<\/table>\n<\/div>\n

and the all important Risk-Weighted Asset Ratios!<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n
BMO
\nRisk-Weighted Asset Ratios
\nOctober 2007
\n& July 2008<\/td>\n<\/tr>\n
 <\/td>\nNote<\/td>\n2007<\/td>\n3Q08<\/td>\n<\/tr>\n
Equity Capital<\/td>\nA<\/td>\n13,126<\/td>\n13,609<\/td>\n<\/tr>\n
Risk-Weighted Assets<\/td>\nB<\/td>\n178,687<\/td>\n182,258 <\/td>\n<\/tr>\n
Equity\/RWA<\/td>\nC=A\/B<\/td>\n7.35% <\/td>\n7.47% <\/td>\n<\/tr>\n
Tier 1 Ratio<\/td>\nD<\/td>\n9.51% <\/td>\n9.90% <\/td>\n<\/tr>\n
Capital Ratio<\/td>\nE<\/td>\n11.74% <\/td>\n12.29% <\/td>\n<\/tr>\n
Assets to Capital Multiple<\/td>\nF<\/td>\n17.17x<\/td>\n15.87x<\/td>\n<\/tr>\n
A is taken from the table “Issuance Capacity”, above
\nB, D & E are taken from BMO’s Supplementary Report
\nC is my calculation.
\nF is from OSFI (4Q07) and BMO’s Supplementary Report (2Q08)<\/em><\/td>\n<\/tr>\n<\/table>\n<\/div>\n

BMO’s supplementary data discloses a “Tangible common equity-to-risk-weighted-assets” figure that sounds like it should be equal to my “Equity\/RWA” in the table. Their figure is 7.44%; it is not immediately clear to me how this figure is calculated.<\/p>\n

Of interest is the improvement in their capital ratios, including the Assets-to-Capital multiple. It appears that their earnings are being used to displace borrowings, rather than being levered up.<\/p>\n

I note as well that there is no adjustment to capital for “Expected loss in excess of allowance”, indicating that their ALLL is again equal to the EL<\/a> which is indicative of conservative approach to assessing credit write-offs.<\/p>\n","protected":false},"excerpt":{"rendered":"

BMO has released its Third 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 …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[],"class_list":["post-2663","post","type-post","status-publish","format-standard","hentry","category-regulatory-capital"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/2663","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2663"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/2663\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2663"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2663"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2663"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}