Bank of Montreal Issues Auto-Callable Equity Linked Securities Tied to Apollo Global Management and Blackstone Stock Performance

Structure and Automatic Call Mechanism of BMO's Equity Linked Securities

Bank of Montreal's new securities represent a complex structured product with multiple embedded conditions and payment contingencies. The securities are medium-term notes classified as Series K, and they incorporate automatic call features that distinguish them from conventional debt instruments. According to the disclosure, the securities are linked to the lowest-performing common stock of Apollo Global Management, Inc., with Bloomberg ticker APO, and Blackstone Inc., with Bloomberg ticker BX. The underlier call condition is satisfied if the closing value of each respective stock on a call date is greater than or equal to its starting value, which the filing specifies as the closing value on the pricing date of August 6, 2026.

The automatic call mechanism operates as follows: if, as of any call date, each underlier has satisfied the underlier call condition on or prior to that call date, the securities will automatically be called. Upon automatic call, investors will receive a cash payment per security in U.S. dollars equal to the face amount of $1,000 plus the applicable call premium. The filing notes that the call premium will be a percentage of the face amount that increases for each call date based on a simple, non-compounding return of at least approximately 19.50% per annum, though the exact percentages are to be determined on the pricing date. Importantly, investors will receive no notice from Bank of Montreal if the securities are automatically called, and upon call settlement, the securities cease to be outstanding with no further rights for the investor.

Principal-at-Risk Features and Downside Exposure Limitations

One of the defining characteristics of these securities is that they do not function like conventional debt instruments. Unlike ordinary bonds, the securities do not pay periodic interest, do not guarantee repayment of a fixed principal amount at maturity, and are explicitly subject to principal risk. The filing clearly states that investors may lose a significant portion or all of the face amount depending on the performance of the underlying stocks. The disclosure identifies a threshold value for each underlier set at 50% of its starting value, and this threshold is critical to understanding the potential downside protection and exposure.

If the securities are not automatically called and reach maturity on August 9, 2030, the maturity payment amount will depend entirely on the performance of the lowest-performing underlier. The filing specifies two scenarios: if the ending value of the lowest-performing underlier is less than its starting value but not by more than 50%, the investor will receive the face amount of $1,000. However, if the ending value of the lowest-performing underlier is less than its starting value by more than 50%, the investor will have full downside exposure to the decrease in value from the starting value and will lose more than 50%, and possibly all, of the face amount. This structure means that investors in these securities face asymmetric risk, with upside capped at the call premium but downside extending to complete loss of principal.

Limitations on Upside Participation and Returns

A significant restriction of these securities is that any positive return is strictly limited to the applicable call premium, regardless of how much either underlying stock appreciates. The filing emphasizes that even if the closing value of an underlier on an applicable call date significantly exceeds its starting value, investors will not participate in any appreciation beyond the fixed call premium. This capped-upside feature means that investors cannot benefit from strong performance by either Apollo Global Management or Blackstone beyond the predetermined call premium amounts established for each call date.

Furthermore, the filing highlights a critical structural vulnerability: if the securities are not automatically called, the investor's return depends solely on the performance of whichever underlier is the lowest performing. This means investors will not benefit in any way from the performance of the better-performing underlier. The disclosure warns that investors will be adversely affected if either underlier performs poorly, even if the other underlier performs favorably. This "worst of" feature compounds the risk profile, as the return is determined by the weakest-performing stock rather than an average or weighted combination of both stocks.

Credit Risk and Bank of Montreal Obligations

All payments on these securities are explicitly subject to the credit risk of Bank of Montreal, and investors have no ability to pursue either Apollo Global Management or Blackstone for payment. The filing makes clear that if Bank of Montreal defaults on its obligations, investors could lose some or all of their investment. This credit risk sits independent of the market performance of the underlying stocks; even if both Apollo and Blackstone perform well, Bank of Montreal's default would result in loss of the investment. The securities are unsecured obligations of Bank of Montreal, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency.

Additionally, the disclosure confirms that these securities are not bail-inable notes and are not subject to conversion into Bank of Montreal's common shares or the common shares of any of its affiliates under Canadian deposit insurance legislation. This distinction is important because it means the securities do not benefit from any conversion or bail-in protections that might otherwise apply to certain financial institution debt instruments. The investor's only recourse is direct claim against Bank of Montreal as an unsecured creditor.

Pricing, Distribution, and Agent Terms

The original offering price for the securities is set at $1,000 per security, with Wells Fargo Securities, LLC designated as the agent for distribution and acting as principal. The agent will receive a discount of $25.75 per security, resulting in net proceeds to Bank of Montreal of $974.25 per security. The filing also indicates that Bank of Montreal's affiliate, BMO Capital Markets Corp., may pay a fee of up to $2.00 per security to selected securities dealers in consideration for marketing and other services related to distribution of the securities to other securities dealers. The pricing date is specified as August 6, 2026, and the issue date is August 11, 2026.

The filing notes that on the date of the preliminary pricing supplement, the estimated initial value of the securities was $966.00 per security. However, the disclosure states that the estimated initial value at pricing may differ from this amount but will not be less than $920.00 per security. The filing further cautions that the actual value of the securities at any time will reflect many factors and cannot be predicted with accuracy. This distinction between offering price and estimated initial value reflects the complexity of the structured product and the difficulty in pricing securities with embedded derivatives and contingent payoff features.

Maturity Timeline and Key Dates

The securities have a stated maturity date of August 9, 2030, creating a four-year investment horizon from the issue date of August 11, 2026. The pricing date of August 6, 2026, establishes the starting values for both Apollo Global Management and Blackstone stock, which serve as the reference points for all performance calculations and call condition determinations throughout the life of the securities. The filing specifies that the last call date is the final calculation day, and any payment upon an automatic call on the final calculation day, if applicable, will be made on the stated maturity date.

Throughout the investment period, investors must monitor whether the underlier call conditions are satisfied on each scheduled call date. The timing mechanism is structured so that the underlier call condition for each underlier may be satisfied on different call dates for purposes of determining whether the securities will be automatically called. This staggered satisfaction structure allows for the possibility that one stock could meet its call condition before the other, but the automatic call would only occur once both stocks have satisfied their respective conditions on or prior to the same call date.

Risk Considerations and Investor Protections

The disclosure document explicitly warns investors that the securities have complex features and involve risks not associated with an investment in conventional debt securities. The filing directs investors to "Selected Risk Considerations" within the pricing supplement and to more detailed risk discussions in the accompanying product supplement, prospectus supplement, and prospectus. The primary risks identified include the potential for significant principal loss, the asymmetric payoff structure favoring the issuer, and the concentration of return determination on the single worst-performing underlier rather than a diversified calculation method.

The filing emphasizes the absence of periodic interest payments or dividend payments, distinguishing these securities from traditional bonds that typically provide interim cash flow to investors. The securities are not designed to be exchange-listed and are intended to be held to maturity or until automatic call, meaning investors should not expect to actively trade these instruments in secondary markets. The lack of liquidity and the complexity of valuation make these securities suitable only for sophisticated investors who understand the risks and can afford to hold the position for the full duration or until call.

Registration and Regulatory Status

The pricing supplement has been filed pursuant to Rule 424(b)(2) under the Securities Act, with the underlying registration statement numbered 333-285508. The disclosure references accompanying product supplement WF1 dated March 25, 2025, prospectus supplement dated March 25, 2025, and prospectus dated March 25, 2025. The preliminary pricing supplement itself is dated July 29, 2026, with the notation "Subject to Completion," indicating that certain terms remain subject to finalization, and the final pricing supplement is dated as "August , 2026," with the specific date to be filled in prior to execution.

The filing includes a standard regulatory notice that neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities, nor has any such body passed upon the accuracy or adequacy of the pricing supplement or the accompanying product supplement, prospectus supplement, and prospectus. The filing also contains the statutory warning that any representation to the contrary constitutes a criminal offense, underscoring the seriousness of regulatory requirements governing the offer and sale of these complex securities.

Implications for Investors Evaluating Structured Products

This offering demonstrates the complexity of modern structured securities and the multiple layers of risk that investors assume beyond simple equity or debt exposure. The securities combine equity market risk linked to two specific companies, credit risk of Bank of Montreal, interest rate risk (embedded in the valuation), and liquidity risk due to the lack of secondary market trading. The combination of principal risk, capped upside, and downside exposure tied to the worst-performing stock creates a risk-return profile that differs significantly from conventional bonds or equity investments.

Investors should carefully evaluate whether the potential call premiums, while potentially ranging into double-digit percentages on an annualized basis, adequately compensate for the risks undertaken, including the potential for total loss of principal if Bank of Montreal defaults or if the lowest-performing underlier declines more than 50% from its starting value. The estimated initial value of no less than $920.00 per security on a $1,000 offering price reflects the embedded cost of the derivative features, and investors should understand that they are paying approximately 7.5% to 8% of face value for the structured payoff features rather than owning a discount-issued bond that would eventually repay full principal.