A Bank of Montreal (BMO) logo is seen outside a branch in Ottawa, Ontario, Canada, February 14, 2019. Portal/Chris Wattie/File Photo Acquire License Rights
TORONTO, Sept 17 (Portal) – Bank of Montreal (BMO) (BMO.TO) is winding down its retail automobile financing business and shifting focus to other areas. This will result in an unspecified number of job losses, the third largest in Canada, the bank said Saturday.
The move, applicable in Canada and the United States, comes after BMO’s retail bad debt provisions rose to C$81 million ($60 million) in the quarter ended July 31, compared with a recovery of $9 million .CAD a year ago, which is a sign of the increasing stress consumers are facing due to a rapid increase in borrowing costs.
“By closing the indirect retail auto financing business, we have the opportunity to focus our resources on areas where we believe our competitive position is strongest,” BMO said in a statement to Portal.
The bank is working closely with employees affected by the job cuts to provide support, it said.
In a letter sent to car dealers and seen by Portal, the company’s head, Paul Hunsley, said the termination of the dealer’s contract would take effect on September 15, but that the bank would finance any contracts submitted and approved before that date .
With indirect car financing for private customers, the bank provides financing to the vehicle seller rather than directly to the buyer, who makes monthly payments to the lender.
Gross loans in the automotive retail business rose about 34% year-over-year to C$17.36 billion in the third quarter and accounted for 2.7% of the bank’s total loans, according to BMO’s most recent financial report, released in August became.
A rapid rise in interest rates is slowing the Canadian economy, and banks are providing more resources to deal with the expected increase in bad loans. Last month, BMO announced that provisions for loan losses rose to 492 million Canadian dollars, compared to 136 million Canadian dollars a year ago.
It said commercial impairment losses in the United States rose 10 basis points from the previous quarter, driven by a large provision in the retail sector.
BMO has turned to the United States in search of new growth opportunities as markets in Canada remain saturated. Earlier this year, the company spent $16.3 billion to acquire Bank of the West and expanded into 32 states in the western U.S., including California.
The United States now accounts for more than a third of BMO’s total profits.
(This story has been corrected in paragraph 11 to reflect that the U.S. accounts for one-third of BMO’s total profits, not two-thirds.)
Reporting by Nivedita Balu in Toronto. Editing by Denny Thomas, Jane Merriman and Susan Fenton
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