Bank of Montreal to close retail auto finance business, flags job losses

Bank of Montreal to close retail auto finance business, flags job losses

Bank of Montreal (BMO) announced on Saturday that it is winding down its retail auto finance business in Canada and the United States. This decision will result in job losses, although the exact number was not specified. The move comes after BMO’s bad debt provisions in retail trade increased to C$81 million ($60 million) in the quarter ended July 31, compared to a recovery of C$9 million the previous year. This rise in bad debt provisions reflects the growing stress consumers are facing due to higher borrowing costs.

BMO stated that by winding down the indirect retail auto finance business, they can focus their resources on areas where they have a competitive advantage. The bank also emphasized that they are working closely with affected employees to provide support during this transition.

In a letter sent to car dealers, Paul Hunsley, the head of the business, stated that the termination of the dealer agreement would be effective from September 15. However, the bank will still fund all contracts submitted and approved prior to that date. Under the indirect retail auto finance business, BMO provides financing to the vehicle seller rather than directly to the buyer, who then makes monthly payments to the lender.

According to BMO’s latest financial report released in August, gross loans in its retail auto business increased by approximately 34% in the third quarter compared to the previous year, reaching C$17.36 billion. These loans accounted for 2.7% of the bank’s overall loans.

The Canadian economy is experiencing a slowdown due to the rapid rise in interest rates, leading banks to set aside more funds to deal with expected increases in bad loans. BMO reported that provision for credit losses rose to C$492 million last month, compared to C$136 million the previous year. Additionally, commercial impaired losses in the United States increased by 10 basis points from the previous quarter, primarily driven by a large provision in the retail trade sector.

To find new avenues of growth, BMO has been focusing on the United States, as the Canadian market remains saturated. Earlier this year, the bank spent $16.3 billion to acquire Bank of the West and expand its presence in 32 states, including California. As a result, the United States now accounts for more than two-thirds of BMO’s overall profits.

In conclusion, Bank of Montreal is winding down its retail auto finance business in Canada and the United States, leading to job losses. This decision was made due to the increase in bad debt provisions and the bank’s desire to focus on areas where it has a competitive advantage. BMO will continue to support contracts submitted and approved prior to the termination of the dealer agreement. The bank’s retail auto business has experienced significant growth, but the rise in interest rates has led to higher provisions for credit losses. BMO is looking to the United States for new avenues of growth, as the Canadian market is saturated.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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