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Bank of Montreal (BMO) has unveiled plans to shutter its retail auto finance business, a move that could result in job losses across Canada and the United States. This decision follows a substantial increase in BMO’s bad debt provisions within the retail trade sector, surging to C$81 million ($60 million) for the quarter ended July 31, compared to a recovery of C$9 million a year ago. The surge underscores the growing financial stress faced by consumers due to rising borrowing costs.
Repositioning Resources for Strength
BMO released a statement to Reuters, explaining, “By winding down the indirect retail auto finance business, we have the ability to focus our resources on areas where we believe our competitive positioning is strongest.” The bank is actively collaborating with affected employees to provide necessary support during this transition.
Effective Termination Date Set At Bank of Montreal
In a letter addressed to car dealers, Paul Hunsley, the head of the business, confirmed that the termination of the dealer agreement will take effect on September 15. However, the bank has committed to honoring all contracts submitted and approved before this date.
Rising Loan Volumes and Concerns
BMO’s retail auto business experienced a significant increase of approximately 34% in gross loans during the third quarter, reaching C$17.36 billion compared to the previous year. These loans accounted for 2.7% of the bank’s overall loans, as per BMO’s latest financial report from August.
Economic Impact of Interest Rate Hike
The rapid escalation of interest rates has cast a shadow over the Canadian economy, leading banks to set aside more funds to tackle expected surges in bad loans. In the previous month, BMO reported that provisions for credit losses had surged to C$492 million, a substantial increase compared to C$136 million the previous year. Notably, commercial impaired losses in the United States increased by 10 basis points in the prior quarter, largely driven by significant provisions within the retail trade sector.
Expanding Horizons in the United States
Amidst saturated markets in Canada, BMO has been actively seeking new avenues for growth in the United States. The acquisition of Bank of the West for $16.3 billion earlier this year allowed the bank to expand its presence across 32 states in the western United States, including California. This strategic move has significantly increased BMO’s overall profits, with the United States now contributing to more than a third of the bank’s total profits.
Disclaimer: This article serves solely for informational purposes and should not be construe as financial advice. Thus, we strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
