BMO says trust repair talks ongoing, shares fall

Fri Feb 29, 2008 3:37pm EST
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By Nicole Mordant

VANCOUVER, British Columbia (Reuters) - Bank of Montreal (BMO.TO: Quote) remains in talks to restructure two troubled asset-backed commercial paper trusts, BMO, Canada's fourth-biggest bank said on Friday, adding that it doesn't yet know if it faces further losses.

The market took little comfort from the news, lopping more than 4 percent off BMO's stock price as the bank also said it could face litigation should the restructuring of the two trusts, Apex and Sitka, fail.

BMO warned last week that it might have to write down its remaining C$495 million ($505 million) exposure to the trusts, the ratings of which were cut to junk by agency DBRS a day ago. That possible writedown comes on top of a C$490-million pretax charge the bank said it will take in the first quarter because of various credit market-related problems.

The Globe and Mail newspaper reported on Friday that BMO, because of the possible additional writedowns, has "signaled" it may pull out of a broader repair job being done on Canada's broken-down nonbank ABCP market.

Sitka and Apex are not part of that restructuring.

The newspaper, quoting unnamed sources, said BMO officials recently told a group of investors trying to repair this corner of Canada's money market that the bank may no longer be able to honor its commitment to contribute to a credit line.

The C$14 billion credit line is crucial to restructuring the seized-up C$33 billion market for ABCP not issued by Canada's big banks. Without the financial lifeline, the repair may not be able to go ahead, pushing the market into default and spelling losses for investors.

Neither BMO nor a spokesman for the investor committee restructuring the ABCP market could be reached for comment.   Continued...