Bank of Montreal is in the 10 per cent club, as a $450-million sale of equity on Friday boosts the bank's capital reserves.
BMO is the latest bank to shift to a more conservative stance on capital, joining CIBC and Royal Bank of Canada as institutions with Tier 1 capital ratio of more than 10 per cent. In the past, Canadian banks were content to do business with Tier 1 capital ratios in the 8 per cent range. The credit crunch have seen banks, and insurers, move to shore up their balance sheets.
Unlike rival banks, BMO is raising this capital without selling common shares. Instead, it will issue $450-million worth of what's known as BMO Tier 1 Notes, a hybrid security that features regular interest payments, just like a bond, but is treated as equity from an accounting point of view.
The issue is being sold by BMO Capital Markets. These BMO Tier 1 notes pay a 10.221 per cent interest rate. Earlier this week, Credit Suisse estimated that Bank of Montreal's balance sheet was $432-million short of a 10 per cent Tier 1 capital ratio.