BMO UPDATE: Bloomberg on Amoss: Bank of Montreal Falls After Newsletter Predicts Dividend Cut
BMO UPDATE: Reuters: Option bears eye Bank of Montreal puts before results (puts outpace calls by factor of 13.23)
BMO UPDATE: BMO closes on TSE down $1.85 (-3.64%), biggest drop since May 27
BMO UPDATE: Globe and Mail blog: More BMO nail-biting - BMO down $1.60
Blogs are abuzz with news that Bank of Montreal is in financial trouble. Sparked by the claims made by Dan Amoss, rumours are running rampant.
This was posted on Stockgumshoe.com:
"On Monday, August 24th, at noon, Dan Amoss will expose the biggest banking lie of the past 64 years. Given the past 21 months of market action — that’s no small claim. If recent mainstream headlines make you believe that banks have weathered the storm. You better think again. Dan’s caught another major bank he thinks is lying about being able to pay their massive $1.5 billion dividend scheduled for 2009. He believes this bank’s using every shady accounting trick possible to hide losses from their shareholders."
These allegations have the internet in a tither about possible financial problems with the Bank of Montreal.
So what is Mr. Amoss going to announce today?
According Joe Schriefer, Publisher of Amoss's Strategic Short Report newsletter, Mr. Amoss will assert that shareholders are being mislead by BMO.
In a promotional piece to plug subscriptions for the newsletter, Schriefer states that Mr. Amoss will claim that BMO is in denial about the level of potential losses the bank faces. If jobless numbers continue to spike — as he believes they will — BMO will be on tenuous ground. Amoss will cite stats about:
- personal debt levels in Canada hitting an all time high,
- survey's showing 21% of all respondents admitting that they’re at a level where they can’t “manage their debt”, and
- reports from David Wolf, a Merrill Lynch economist, saying he’s worried that Ontario has been running “a larger financial deficit” than the most heavily indebted economies.
Amoss will claim that Ontario accounts for over $85 billion of BMO's outstanding lonas (more than 60% of their entire loan book) and that since more than 1 in every 7 people have jobs tied to the auto industry in that Province, and since unemployment in this specific area just hit an all time high - with some reports coming in at 14% unemployment — that the potential default rate is far, far higher than the Bank of Montreal has budgeted for.
The next claim Amoss will make is that BMO is using accounting tricks to hide bad loans by grading their loan books 50% BETTER in this recession than they have in previous recessions.
Amoss will assert that if BMO is finally forced to admit to a massive wave of loan defaults — which he believes they’ll be forced to do as early as August 25th — they’ll have a huge hole in their balance sheet… and they’ll have no choice but to cut their dividend to survive.
Since no major bank like this one has cut their dividend in 64 years, Amoss believes if BMO is forced to cut, their share price will crash.
Finally, Schriefer says, Amoss will assert that BMO is lying about how much money they have.
Amoss will point to Lehman Brothers and their 3rd quarter conference call on September 10, 2008. Lehman Brothers touted to their shareholders that they were “well capitalized”. Five days later they filed for the largest bankruptcy in history.
Lehman's was able to make this false assertion, as Amoss says, because Lehman's used an accounting trick called the “Tier 1 Capital Ratio.”
Lehman's claimed that the higher the “Tier 1 Capital Ratio,” the more money they had. And the more bad loans they would be able to withstand.
Specifically, Lehman bragged about something called an “11% capital ratio” and told shareholders that this was among the strongest in the business.
Amoss will assert that he identified this diversionary tactic with Lehman's and called their collapse as a result.
Amoss will insist the “Tier 1 Capital Ratio” is NOT the way to measure the true value of a financial stock.
He will also point out that Citigroup did the same thing. In their third quarter 2008 conference call, Citigroup said, “our Tier 1 ratio was 8.2% and our liquidity position remains strong.”
Less than 45 days later, the taxpayers bailed out Citigroup with a $20 billion capital infusion.
Amoss will assert that BMO is now doing the same thing that Lehman's and Citigroup did by claiming a “10.4% capital ratio” as proof of their financial health.
Amoss will say that’s a lower capital ratio than Lehman was touting just five days before bankruptcy. Amoss will assert that BMO is in no better position to withstand losses than Bank of America, SunTrust or First Third, all of who had to cut their dividend to survive and all of whom have tanked over the last year.
Amoss's argument will be that the deadly combination of being in denial about the big picture, grading their loans better than they are, and lying about how much money they have should all culminate in one outcome... a dividend cut followed by a sudden drop in share price.
Amoss will claim that despite the accounting tricks, BMO's first quarter earnings barely covered half of the dividend they promised shareholders.
To keep up their front of a healthy company, Amoss will say BMO paid out dividends as normal, forcing them to burn through $167 million in cash they stocked away for a rainy day.
And even though the second quarter earnings fell short of the cash they needed to pay that dividend, Amoss will say BMO dipped into their reserves and paid that one, too... draining them of another $50 million.
Why would BMO continue to pay the dividend?
Schriefer says Amoss will assert it’s all an attempt to keep the BMO share price high for long enough so BMO can dump their own stock for major profits.
Amoss will assert that after years of buying their own stock, the tides have turned in the past three months and that BMO's sell transactions have outnumbered the buys. Amoss will also assert that BMO's Chief Financial Officer of the bank’s trading arm sold $760,000 of his stock since their last conference call.
And in a telling sign less than two months ago, Amoss will claim that a message left at stockhouse.com claims that insiders sold a whopping $2.8 million worth of their own stock in a single day.
Amoss believes the frantic insider selling since their last quarterly report suggests one thing: As soon as their next earnings call — scheduled for Tuesday the 25th of August— they could announce a dividend cut.
And he believes that BMO's share price will collapse as a result.
We shall see.
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