Bank of Montreal Launches Auto-Callable Equity-Linked Notes Backed by Broadcom, Deere & Meta Performance

Market-Linked Note Structure and Features

Bank of Montreal structured these senior medium-term notes as complex equity-linked instruments designed to deliver contingent income and automatic call options instead of traditional fixed-rate debt returns. These unsecured obligations depend entirely on the performance of Broadcom Inc., Deere & Company, and Meta Platforms Inc., specifically monitoring the lowest-performing stock on quarterly calculation dates. This structure exposes investors to downside risk tied to the weakest stock while forgoing any upside participation, diverging from conventional debt securities.

The notes include three key thresholds per underlying stock: a coupon threshold at 60% of the initial value, a call threshold at 95%, and a downside threshold also at 60%. These levels dictate coupon eligibility, automatic call activation, and principal repayment or loss. Wells Fargo Securities, LLC serves as distribution agent. The original $1,000 offering price includes a $23.25 agent discount, yielding net proceeds of $976.75 per note to Bank of Montreal.

Contingent Coupon Payments and Memory Feature Explained

Quarterly contingent coupons are offered at an annualized minimum rate of 22.80%, payable only if the lowest-performing stock’s closing price on the calculation day is at least 60% of its starting value. If below this threshold, no coupon is paid that quarter, contrasting with traditional fixed-income where interest accrues regardless of market conditions.

A memory feature accumulates unpaid coupons when the lowest performer dips below 60%. If the stock later recovers above this threshold, investors receive the current quarter’s coupon plus all missed payments (without interest). However, if the lowest performer never rebounds above 60% during the note’s life, no coupons are paid, and investors only receive principal at maturity if the downside threshold is not breached. This creates significant variability in total returns based on the performance trajectory of the weakest stock.

Automatic Call Provision and Early Redemption Risk

The notes include an automatic call feature allowing early redemption before the August 1, 2029 maturity. If the lowest-performing stock’s closing price reaches or exceeds 95% of its initial value on any quarterly calculation date from October 2026 through April 2029, the notes are called early and redeemed at par plus all due contingent coupons. This caps upside potential, as gains beyond the call threshold result in early redemption rather than further appreciation.

The automatic call is both time- and path-dependent. Even if two stocks lag, the notes will be called if the lowest performer hits the 95% threshold. Conversely, if all three stocks decline sharply, no call is triggered, leaving investors exposed to downside risk through maturity. Quarterly calculation days provide multiple early redemption opportunities.

Principal Risk and Downside Exposure

Unlike principal-protected notes, these securities expose investors to principal loss. If not called early and the lowest-performing stock closes below 60% of its starting value at maturity, investors face losses exceeding 40%, potentially losing their entire principal. The notes’ payoff is fully dependent on the worst-performing stock, regardless of the other two stocks’ performance. For instance, if Broadcom and Meta remain stable but Deere falls 50%, investors lose 50% of principal at maturity. Investors do not benefit from any stock appreciation or dividends, limiting return potential compared to direct equity ownership.

Issuer Credit Risk and Security Structure

Payments rely on Bank of Montreal’s creditworthiness. If the issuer defaults, investors risk losing some or all of their investment without recourse to the underlying assets or distribution agent. These unsecured notes are not insured by FDIC, Canada Deposit Insurance Corporation, or any other government agency, concentrating risk on the issuer’s financial strength in addition to market risks.

The notes are not bail-inable and will not convert into Bank of Montreal common shares or affiliates’ shares under Canadian deposit insurance regulations. Investors depend solely on Bank of Montreal’s ability and willingness to fulfill payment obligations as outlined.

Pricing, Valuation, and Fees

The preliminary pricing supplement estimates an initial value of $968.40 per note, with pricing expected not to fall below $920.00. This reflects embedded optionality, contingent features, agent discounts, and hedging costs. Pricing is set for July 27, 2026, with issuance on July 30, 2026. Wells Fargo Securities, LLC receives a $23.25 agent discount per note, while BMO Capital Markets Corp. may pay up to $3.00 per note to select dealers for marketing. Investors pay the full $1,000 face value, with the issuer netting $976.75 before dealer concessions.

Complexity and Risk Compared to Traditional Investments

The pricing supplement highlights the complexity and unique risks of these securities compared to conventional debt. Combining debt-like maturity and issuer obligations with equity derivative features and exotic options, the notes carry multiple contingent risks. The lowest-performer linkage amplifies downside exposure while eliminating upside gains and dividends. The automatic call limits returns to face value plus coupons, requiring investors to weigh the trade-off between potential quarterly income and principal risk.

Distribution and Liquidity Considerations

Wells Fargo Securities, LLC acts as principal distributor, managing the offering and marketing. The notes are intended to be held until maturity or automatic call and are not exchange-listed, resulting in limited liquidity. Early exit would require negotiation with the distribution agent or private buyers, as no secondary market exists.

The offering targets institutional and sophisticated retail investors able to understand the complex mechanics and accept principal risk for potential quarterly coupons. Minimum investment is $1,000 per note. No maximum offering size or subscription deadline is disclosed, indicating ongoing availability through the distribution agent. Prospective investors should consult Wells Fargo Securities for detailed terms, pricing, and calculation schedules.

Regulatory Filings and Investor Disclosures

The pricing supplement, filed under Rule 424(b)(2) of the Securities Act of 1933 and referencing Registration Statement No. 333-285508, is dated July 23, 2026 and marked "Subject To Completion." Final terms, including starting values and coupon rates, will be set at pricing on July 27, 2026. Accompanying documents include product, prospectus supplements, and base prospectus detailing risk factors, legal definitions, and operational terms.

Regulatory disclosures clarify that neither the SEC nor state securities commissions have approved or disapproved the notes. Any contrary representation is a criminal offense. This underscores the self-directed nature of the investment, requiring independent analysis and acknowledging no government validation of the offering’s suitability or accuracy.