Bank of Montreal completes $5B in synthetic risk transfers across two corporate loan portfolios

Bank of Montreal just moved $5 billion worth of corporate loan risk off its books in two separate transactions, joining a crowded field of Canadian lenders racing to capitalize on surging investor appetite for synthetic risk transfers. The two deals, executed within the last two months, split evenly between BMO’s Muskoka program and its Algonquin program, each handling $2.5 billion in corporate loans. One targets large corporate borrowers, the other mid-market companies. How the deals are structured For anyone unfamiliar with synthetic risk transfers, here’s the short version: a bank keeps its loans on the balance sheet but pays outside investors a premium to absorb the first chunk of potential losses. The bank gets regulatory capital relief without actually selling anything, and investors get paid for taking on the riskiest slice of the portfolio. In BMO’s case, the Muskoka program’s first-loss tranche represented more than 7% of the $2.5 billion portfolio, while Algonquin’s came in at over 6%. Muskoka priced below 700 basis points, and Algonquin landed in the mid-700 basis-point range. Canada’s SRT moment BMO isn’t operating in isolation here. Toronto-Dominion Bank, Royal Bank of...