Bank of Montreal today disclosed that trading losses on its natural gas trading portfolio have surged to $680 million from its initial report of $450 million.

The bank said it will take $509 million of the losses in its first quarter, and $171 million in its second- uarter results. The bank’s restated first-quarter results and its second-quarter financial statements will be released May 23.

BMO said it is continuing to investigate the trading losses, including a review to determine whether any irregularities in trading and valuation took place.

“Since our initial announcement on April 27, BMO and our external advisers have continued to investigate this matter,” said Bill Downe, the bank’s president and CEO.

“This has provided additional insight into the current circumstances, helped guide the actions we have taken and those we will take going forward. BMO has reduced the risk in this portfolio by approximately a third from its peak,” he said in a news release.

After the bank initially revealed the trading losses on April 27, BMO suspended its relationship with the brokerage Optionable Inc., pending the results of an external review.

When the losses were revealed last month, BMO said its positions in the energy market, primarily for natural gas, were negatively affected by changes in market conditions. BMO said the market had become increasingly illiquid and volatility dropped to historically low levels.

BMO’s commodities portfolio is now more appropriately marked-to-market as of April 30, 2007, based on a completed valuation review.

BMO has taken a number of steps related to these mark-to-market commodities trading losses:

The bank said BMO’s Tier 1 capital ratio remains strong and the impact of the losses announced today will be modest at approximately 20 bps on its ratio.

DBRS has confirmed the ratings of Bank of Montreal, following today’s announcement that mark-to-market commodity trading losses in the energy trading book would be above initial estimates.

“The sharp increase in these trading losses further extends the negative impact this situation has on the bank’s reputation,” DBRS says, adding that it has also raised concerns for the rating agency.

That said, DBRS indicates that the rating confirmation reflects: DBRS’s continuing belief that the issues are isolated to this one portfolio; that BMO is taking the appropriate steps; and, that this is not a capital issue, as the bank can absorb these losses and still have strong capital ratios.

“The sharp increase in the loss reflects the use of a more appropriate market-based methodology as a result of obtaining new information since the original announcement on April 27, 2007. Currently there are ongoing investigations into trading and portfolio valuation irregularities in this trading book. Other trading portfolios are not affected by these valuation issues,” DBRS says.