Bank of Montreal warned Tuesday it would take a pre-tax charge of $490 million in the first quarter related to trading losses and writedowns in its BMO Capital Markets Group.

The charge would reduce its first-quarter profit by about 70 cents a share, it said. BMO will report its final results for the quarter on March 4.

BMO three-month trading

BMO shares were off 60 cents at $53.23 at 11 a.m. ET. It was the only one of the big six banks in negative territory.

The $490 million charge — $325 million after tax — is due to several factors broadly related to the credit crisis:

• A $160-million charge relating to the cost of liquidating positions previously hedged with ACA Financial Guaranty, a troubled bond insurance company.
• A $130-million charge relating to BMO's investment in Apex/Sitka Trust, a structured investment vehicle (SIV). This is in addition to an $80-million charge it took in the fourth quarter. 
• A $175-million charge relating to "trading and structured credit-related positions, preferred shares, third-party Canadian conduits and other mark to market losses."
• A $25-million charge relating to capital notes in two structured investment vehicles — Links Finance Corp. and Parkland Finance Corp.

BMO said its Tier 1 capital ratio "remains strong."

The bank also announced a proposal to provide support for the funding of two SIVs — Links Finance Corp. and Parkland Finance Corp. BMO proposes to cap liquidity facilities at $11 billion US for Links and 1.2 billion euros for Parkland.

"Given the terms and conditions of the proposed liquidity facilities and the maturity profile of the senior notes, the amount to be drawn is expected to be approximately one half of the amount of the maximum amount of the facilities," BMO said in a statement.

BMO said the quality of the SIVs' assets is high, so it expects it will be able to extend support "without any material adverse impact on its financial position."

It said the risk of loss is low because more than 90 per cent of the assets the SIVs contain are rated AA or better by Moody's. BMO also said it has "minimal" exposure to U.S. subprime mortgages.

This is the second straight quarter that BMO has taken a charge related to trading losses and valuation writedowns.

During the fourth quarter of 2007, BMO recorded $318 million in pre-tax charges. 

The charges included $169 million for trading and structured-credit related positions and preferred shares, $134 million related to Canadian asset-backed commercial paper, and $15 million related to capital notes in two structured investment vehicles.