Fitch Ratings has removed Bank of Montreal from Rating Watch Negative, and affirmed its existing ratings on the bank.

In May, BMO was placed on Rating Watch Negative due to Fitch’s concerns regarding BMO’s risk management practices, particularly the bank’s ability to effectively monitor and manage trading risks. Fitch’s action was taken in the aftermath of sizable losses announced by BMO on natural gas trading activities.

The rating agency says that it is now comfortable with BMO’s measures to sufficiently improve management of trading risks. “Particularly, valuation sources have been considerably improved, market risk measures have been enhanced, significant personnel changes have been undertaken, and risk in commodities trading has been sharply reduced,” it says. “Overall, risk management practices are considered sound.”

The commodity trading losses, while considerable, were readily absorbed by BMO’s operating earnings, Fitch notes. It adds that BMO continues to benefit from its diverse earnings mix, which gives it considerable flexibility to absorb losses in a particular business line. Operating profitability remains solid overall, asset quality is strong and BMO enjoys a comfortable capital position in many international comparisons, it notes.

Fitch says that BMO’s exposures to risk areas such as sub-prime mortgages, leveraged buyout commitments, and hedge funds, remain modest. It does not provide liquidity backup facilities to non-bank sponsored asset-backed commercial paper programs in Canada and funds managed by BMO do not have exposure to ABCP issued by these conduits, it says.