CHICAGO -- Harris Trust and Savings Bank, a subsidiary of Bank of Montreal, will take a $33 million after-tax charge to second-quarter earnings to absorb the impact of higher interest rates on mortgage-backed securities in the accounts of institutional trust customers.
The charge equals about 28% of Harris' 1993 profit.
The bank said that the mortgage-backed securities proved to be unsuitable investments for customer cash collateral accounts in which customers lend their stocks and bonds through Harris to brokerage firms. Harris then receives cash collateral from the brokers, which it invests on behalf of its clients.
The recent increase in interest rates extended the expected maturity of these mortgage-backed securities and reduced their value.
"We've made the business decision to remove the mortgage-backed securities from our customers' accounts and absorb the market-value loss," said Alan G. McNally, chief executive officer.