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Bank of Montreal raises C$2.6 billion in share sale to boost capital buffer

Published 12/16/2022, 01:01 PM
Updated 12/16/2022, 01:05 PM
© Reuters. FILE PHOTO: A Bank of Montreal (BMO) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie/File Photo
BNPQY
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(Reuters) - Bank of Montreal said it has raised C$2.6 billion ($1.9 billion) by issuing new shares after Canada's financial regulator asked lenders to set aside more capital to deal with a turbulent economy following sharp increases in interest rates.

The share sale generated strong demand, allowing Canada's No. 4 lender to exercise its over-allotment option in full, the bank said on Friday.

BMO issued new shares at C$118.60 each, a 5.2% discount to Monday's close when it announced plans to raise capital to boost its Common Equity Tier 1 ratio at or above 11.5%.

Of the total capital raise, C$1 billion came via private placement to investors including Caisse de dépôt et placement du Québec, CPP Investments and others, BMO said.

BMO shares were down 0.2% at C$120.56 on Friday, after falling 2% on Tuesday following the news of the capital raise.

An extra C$750 million will come via share placement to BNP Paribas (OTC:BNPQY), though that is conditional on BMO's successful purchase of the French bank's U.S. unit Bank of the West for $16 billion.

BMO's capital raise comes nearly a week after Canada's financial regulator Office of the Superintendent of Financial Institutions raised the amount of capital the country's biggest lenders must hold as stability buffers by 50 basis points to 3% of risk-weighted assets in response to persistent inflation and rising interest rates.

Last week, the Bank of Canada raised its benchmark overnight interest rate by half a percentage point to 4.25% to its highest level in nearly 15 years to fight inflation.

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The spike in borrowing costs has raised risks of a sharp economic slowdown and higher bad debt, with Canadian banks already starting to increase bad debt provisions.

($1 = 1.3689 Canadian dollars)

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