Bill Downe Still Hasn't Resigned at Bank of Montreal

There's only one reason why the Bank of Montreal (BMO) has been in the news of late: the enormous (C$680 million) losses that its energy traders managed to incur while in cahoots with some very shady characters at a brokerage called Optionable. And yet, somehow, the bank has managed to show a rise in its second-quarter profits, to C$671 million from C$651 million a year ago.

How is this possible? Easy. Bank of Montreal decided that the trading losses belonged overwhelmingly in the first quarter (whose earnings it restated). The amount of the losses that the bank attributed to the second quarter was, by an uncanny coincidence, just small enough that the bank could still report rising year-on-year profits. Isn't that nice.

The Toronto Star's Jennifer Wells has a good roundup of the BMO/Optionable mess today, while more technically-minded types might want to look at Alexander Campbell's blog entry from Monday. In a nutshell, Optionable, which was run by a convicted felon, was very reliant on BMO for revenues and profits. It would seem that Optionable helped BMO trader David Lee, and his boss, Bob Moore, to hide the mark-to-market losses they were making, possibly by simply lying about what those losses were.

Those two men are no longer with BMO, but CEO Bill Downe is still there. He shouldn't be. A major bank like BMO has no business using a tiny Valhalla-based brokerage to do substantially all of its energy trading. And given how much money David Lee was supposedly making for the bank, Downe should definitely have been alert to what was going on.

The only possible redeeming fact for Downe is that he only became CEO on March 1. But he was COO up until that date, so that doesn't get him much off the hook. BMO should hire an outsider as CEO, to shake things up a bit.