Commodities trading losses cost the Bank of Montreal in the third quarter, bumping profit down by 7.1 per cent from the same quarter in 2006, the bank said Tuesday.

During the quarter, the bank cut the fair market value of its commodity derivative contracts by nearly half, to $11.5 billion. That and other commodities charges cost BMO $97 million in the quarter and $424 million so far this year.

The bank also said that unidentified law enforcement authorities are looking into the losses.

But its other lines of business did well, and the bank — formally the BMO Financial Group — said it has largely ducked the subprime mortgage problems causing turmoil in the financial markets.

BMO "has very little direct retail exposure with subprime characteristics" and  its exposure through bonds "is not material." But the bank said it has about $400 million of Canadian third-party asset-backed commercial paper in its trading portfolio, "which may result in some mark-to-market exposure."

Profit for the three months ended July 31 was $660 million ($1.28 a diluted share), compared to $710 million ($1.38 a share) a year earlier. Profit includes the $97 million after-tax hit (19 cents a share), "as we reduced the size and risk of the commodities portfolio."

BMO said regulators and law enforcement authorities have subpoenaed the bank or asked for documents related to the commodities trading losses.

"As these inquiries are in the early stages, we are unable to determine whether any proceedings against the bank will result. We are co-operating with all of these authorities," it said.

The bank initially revealed the trading losses in natural gas contracts on April 27. Two commodity executives were placed on leave. The two are no longer employed at the bank.

BMO shares closed at $70 on April 27. They closed Tuesday at $65.65, down $1.52.

The bank said return on equity for the first quarter slipped to 18 per cent from 20.3 per cent.

Revenue was $2.55 billion, compared to $2.57 billion.

Excluding the commodities losses, the bank said profit would have increased 6.6 per cent. In its other businesses, profit rose by $47 million.

Profit for the nine months ended July 31 was $1.68 billion ($3.24 a diluted share), compared to $1.97 billion ($3.80 a share) a year earlier. Revenue was $7.15 billion, compared to $7.52 billion.

BMO said it will increase its dividend in the fourth quarter by two cents a share, to 70 cents. The dividend will be payable on Nov. 29 to shareholders of record on Nov. 2.