Desjardins: Despite Worse Losses Than Originally Reported, Bank of Montreal Still a 'Buy'

The update from the Bank of Montreal’s (BMO) that its natural gas commodities trading losses will be an estimated $680-million (pre-tax) as opposed to $350-million to US$450-million, will definitely hurt the bank’s earnings and could also lead to even less investor confidence.

Of this $680-million, $509-million will be recorded in BMO’s restated first quarter 2007 results, while the remaining $171-million will be recorded in the second quarter. Both will be reported on May 23, 2007.

Desjardins Securities analyst Michael Goldberg says that no matter the size of the loss, hopefully the days of trading as a black box in banks are coming to an end.

“Banks are big believers in the concept that you can’t manage what you don’t measure,” he told clients in a note. “Therefore, it seems inconceivable that they do not have a multitude of metrics used internally to benchmark trading revenue and to explain variances from expected amounts.”

But if this information is not shared with investors, they have no way of getting a handle on the activity and associated risks, he added.

While Mr. Goldberg considers BMO “dead money” in the near term, he continues to rate the stock a “buy” with a $75 price target, saying the impact of the trading losses should blow over in a year or so.