BMO, TD and US Bancorp hit by out-of-the-money goodwill hedges

Derivatives meant to offset dilution of capital in acquisitions turned loss-making as yields temporarily slumped

A temporary compression in global yields between October and January caused Bank of Montreal, TD Bank and US Bancorp to incur heavy mark-to-market losses, after hedges against capital dilution in acquisition deals turned into loss-making trades.

Financial results for the period show that while in the process of acquiring, respectively, Bank of the West, First Horizon Bank and MUFG Union Bank, the lenders took losses of C$2 billion ($1.5 billion), C$626 billion and $399 million on hedges put in

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