Interest rate swaps help BMO keep M&A deal on track

Hedges to safeguard the Bank of the West acquisition have already yielded $2.7bn in mark-to-market gains

A prescient hedging strategy by Bank of Montreal (BMO) helped keep the Canadian bank’s acquisition of Bank of the West on track amid rising rates since the start of the year, preventing its capital from dissolving into goodwill.

BMO announced the purchase of the California-based lender from BNP Paribas for $16.3 billion in December, financed entirely through equity, for a then-forecast 50% premium to tangible book value (TBV). The difference between the purchase price and TBV is recorded as

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