I’m not the brightest investor on the street, but I know enough that something isn’t quite right when I’ve fielded two dozen questions in recent days about the investing prospects of the Bank of Montreal (BMO) from peers who are intently focused on the stunning 9%+ dividend yield of its common shares.

I first want to lay out in this post the cost of capital that banks have currently experienced when going to the market for equity to shore up their balance sheets.

For investors who might be asking, “What’s this tier 1 capital ratio everyone is talking about?” it’s a basic measure of a banks overall financial strength and health. This ratio measures a bank’s core equity capital to its risk-weighted assets. Risk-weighted assets are a group of assets held by the bank that are weighted for credit risk using a formula provided by industry regulators. Essentially – what reserves does a bank have on hand to cover losses on any assets that it holds?

There’s been a significant move recently in Canada for financial companies (banks & insurers) to raise equity in order to place them over the minimum regulated threshold with the banks as a peer group seeking to bump their tier 1 capital ratio to ~10%.

Royal Bank (RY) announced on December 8th that it intended to issue $2.0B in common equity with the option of fully exercising a total of $2.3B. The pricing of the common shares was set at $35.25 per share and would increase their tier 1 capital ratio to 9.9-10.1%. The equity priced at $35.25 was approximately issued at 1.75x book value and sold at a 6% discount to the previous market price. This puts the issue into a valuation perspective for what it costs to raise this equity.

Canadian insurer Great-West Life (GWO) announced on December 9th that it intended to issue $1.0B in common equity. The pricing of the common shares was set at $20.75 per share. At this price the equity issue was done at approximately 1.9x book value and sold for a 7% discount to the previous market price.

Bank of Montreal (BMO) announced on December 15th that it intended to issue $1.0B in common equity with the option of fully exercising a total of $1.1B. The pricing of the common shares was set at $30.00 per share and would increase their tier 1 capital ratio to 10.4%.