Shares of Bank of Montreal dropped Thursday following a rating agency's downgrade of two trusts to which the bank has half a billion dollars of exposure.

BMO stock lost $1.65, or three per cent, to finish at $52.35 on the TSX.

BMO 3-month chart

On Thursday, the debt rating agency DBRS downgraded its ratings on the debt of Sitka Trust and Apex Trust to junk bond territory.

DBRS said Sitka Trust failed to fulfil its obligations to fund a collateral call on Wednesday.

BMO told DBRS that Apex had failed to roll over some of its notes that came due that day.

DBRS said if Apex Trust defaults, it would result in a default of all of the notes of Sitka Trust because of an agreement between the two trusts.

Thursday's downgrades of the two BMO-supported trusts raises the possibility that BMO could be exposed to further losses.

Earlier this month, BMO said it would take a $130-million charge in the first quarter relating to its investment in Apex and Sitka Trust. That was in addition to an $80-million charge it took in the fourth quarter.

BMO said at the time that its remaining exposure to Apex/Sitka was $495 million.

"If Apex/Sitka is not restructured, it is expected that BMO would incur an additional charge that would approximate its remaining net investment of $495 million pre-tax," the bank said in a Feb. 19 statement.

BMO reports its Q1 results on Tuesday.