Additional details on the Basel III regulatory capital changes can be found in the Enterprise-Wide Capital Management section on pages 60 to 64 of BMO's 2012 Annual Report.
BMO's investments in U.S. operations are primarily denominated in U.S. dollars. Foreign exchange gains or losses on the translation of the investments in foreign operations to Canadian dollars are reported in shareholders' equity (although they do not attract tax until realized). When coupled with the foreign exchange impact of U.S.-dollar-denominated RWA on Canadian-dollar equivalent RWA, and with the impact of U.S.-dollar-denominated capital deductions on our Canadian dollar capital, this may result in volatility in the bank's capital ratios. BMO may partially hedge this foreign exchange risk by funding its foreign investment in U.S. dollars and, to reduce the impact of foreign exchange rate changes on the bank's capital ratios, may enter into derivatives contracts, such as forward currency contracts, or elect to fund its investment in Canadian dollars.
Other Capital Developments
During the quarter, 1,280,000 common shares were issued through the DRIP and the exercise of stock options. On January 30, 2013, we announced that we had received approvals from the Toronto Stock Exchange (TSX) and OSFI to proceed with a normal course issuer bid through the facilities of the TSX to purchase, for cancellation, up to 15 million of BMO's common shares commencing February 1, 2013, and ending January 31, 2014. The timing and amount of purchases under the program are subject to management discretion based on factors such as market conditions and capital adequacy. The bank will only initiate any purchases under the bid after consulting with OSFI.
On February 26, 2013, BMO announced that the Board of Directors had declared a quarterly dividend payable to common shareholders of $0.74 per common share, up $0.02 per share from the preceding quarter. The increase in our dividend reflects our strong capital position and the success of our business strategies.
The dividend is payable May 28, 2013, to shareholders of record on May 1, 2013. Common shareholders may elect to have their cash dividends reinvested in common shares of the bank in accordance with the bank's Shareholder Dividend Reinvestment and Share Purchase Plan ("Plan"). Under the Plan, the bank has determined that the common shares will be issued by the bank from treasury.
Caution
The foregoing Capital Management sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
The foregoing Capital Management sections contain adjusted results and measures, which are non-GAAP. Please see the Non-GAAP Measures section.
----------------------------------------------------------------------------Qualifying Regulatory Capital and Risk-Weighted Assets Table 14---------------------------------------------------------------------------- (1) (2) All-in Transitional ----------------------------Basel III Regulatory Capital and Risk-Weighted Assets(Canadian $ in millions) Q1-2013 Q1-2013----------------------------------------------------------------------------Common Equity Tier 1 capital: instruments and reserves---------------------------------------------------------------------------- Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus 12,241 12,241 Retained earnings 14,002 14,079 Accumulated other comprehensive income (and other reserves) 290 290 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) - - Common Equity Tier 1 capital: regulatory adjustments Regulatory adjustments applied to Common Equity Tier 1 under Basel III (6,640) -----------------------------------------------------------------------------Common Equity Tier 1 capital (CET1) 19,893 26,610---------------------------------------------------------------------------- Additional Tier 1 capital: instruments Directly issued qualifying Additional Tier 1 instruments plus related stock surplus - - Directly issued capital instruments subject to phase out from Additional Tier 1 3,543 3,543 Qualifying Additional Tier 1 instruments (and CET1 instruments not otherwise included) issued by subsidiaries and held by third parties (amount allowed in group AT1) - - Additional Tier 1 instruments issued (and CET1 instruments not otherwise included) by subsidiaries and held by third parties (amount allowed in group AT1) subject to phase out 347 347 Additional Tier 1 capital: regulatory adjustments Regulatory adjustments applied to Additional Tier 1 under Basel III (419) (3,811)---------------------------------------------------------------------------- Additional Tier 1 capital (AT1) 3,471 79----------------------------------------------------------------------------Tier 1 capital (T1 = CET1 + AT1) 23,364 26,689---------------------------------------------------------------------------- Tier 2 capital: instruments and provisions Directly issued qualifying Tier 2 instruments plus related stock surplus - - Directly issued capital instruments subject to phase out from Tier 2 4,405 4,405 Qualifying Tier 2 instruments (and CET1 and AT1 instruments not otherwise included) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) - - Tier 2 instruments (and CET1 and AT1 instruments not otherwise included) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) subject to phase out 215 215 Provisions 270 270 Tier 2 capital: regulatory adjustments Regulatory adjustments applied to Tier 2 under Basel III (50) (30)----------------------------------------------------------------------------Tier 2 capital (T2) 4,840 4,860----------------------------------------------------------------------------Total capital (TC = T1 + T2) 28,204 31,549----------------------------------------------------------------------------Total risk-weighted assets 210,671 214,298----------------------------------------------------------------------------Capital Ratios (%)CET1 Ratio 9.4 12.4Tier 1 Capital Ratio 11.1 12.4Total Capital Ratio 13.4 14.7--------------------------------------------------------------------------------------------------------------------------------------------------------(1) "All-in" regulatory capital assumes that all Basel III regulatory adjustments are applied effective January 1, 2013 and that the capital value of instruments which no longer qualify as regulatory capital under Basel III rules will be phased out at a rate of 10% per year from January 1, 2013 and continuing to January 1, 2022.(2) Transitional regulatory capital assumes that all Basel III regulatory capital adjustments are phased in from January 1, 2014 to January 1, 2018 and that the capital value of instruments which no longer qualify as regulatory capital under Basel III rules will be phased out at a rate of 10% per year from January 1, 2013 and continuing to January 1, 2022.----------------------------------------------------------------------------Outstanding Shares and Securities Convertible into Common Shares Table 15---------------------------------------------------------------------------- Number of shares orAs at February 20, 2013 dollar amount----------------------------------------------------------------------------Common shares 652,017,000Class B Preferred Shares Series 5 (1) $ 200,000,000 Series 13 $ 350,000,000 Series 14 $ 250,000,000 Series 15 $ 250,000,000 Series 16 $ 300,000,000 Series 18 $ 150,000,000 Series 21 $ 275,000,000 Series 23 $ 400,000,000 Series 25 $ 290,000,000Stock options - vested 9,158,000 - non-vested 7,848,000--------------------------------------------------------------------------------------------------------------------------------------------------------(1) The series 5 shares were redeemed on February 25, 2013.Details on share capital are outlined in Note 20 to the audited consolidatedfinancial statements on pages 156 and 157 of BMO's 2012 Annual Report.
