Standard & Poor’s Ratings Services today said it placed the ratings on Bank of Montreal and its related subsidiaries, including the ‘AA-’ long-term counterparty credit rating on BMO, on CreditWatch with negative implications.

“The CreditWatch placement reflects our heightened concerns over the risk associated with the underlying strength of its enterprise risk management framework, management oversight, and the bank’s trading operations following today’s announcement that the total marked-to-market commodities trading losses as at April 30, 2007, would be $680 million before tax,” said Standard & Poor’s credit analyst Donald Chu, in a news release. “This almost doubles the original estimated pre-tax trading loss of $350 million-$450 million that was announced on April 27, 2007,” Chu added.

The loss that will be taken against BMO’s first- and second-quarter results represents about one-half of one quarter’s earnings. Although the size of the loss is manageable given the bank’s earnings generating capacity and capital adequacy position, Standard & Poor’s concerns are centered on the breakdown of formal enterprise risk management controls.

The absolute size of the estimated commodity trading losses far exceeds the bank’s average market value exposure to commodities risk, is disproportionate to its total trading revenues, and does not reflect BMO’s stated strategy of being a low-risk bank.

Standard & Poor’s will be conducting a full review of BMO’s trading risk management and trading operations within the next 30 days, with a particular focus on its commodities trading operations, and its back and middle offices. Following our review, should the bank’s trading risk and enterprise risk management not meet our expectations, both the short- and long-term ratings could be lowered by one notch.