Bank of Montreal (BMO), which is one of Canada’s largest banks, is making some significant changes. They’ve decided to close down their retail auto finance business in both Canada and the United States. Unfortunately, this move will result in job losses, but they haven’t specified exactly how many jobs will be affected.
The reason for this change is because BMO had to put aside lots of money for bad debts in the retail trade sector. In the quarter ending on July 31, they had to put aside 81 million Canadian dollars ($60 million) for bad debts. This is a big increase compared to the 9 million Canadian dollars they got back from bad debts in the same period last year. It shows that consumers are having a tough time with higher borrowing costs.
BMO said they’re doing this to focus on areas where they think they’re better. They’re also working closely with the employees who will lose their jobs to support them.
| Bank Name | Bank of Montreal (BMO) |
|---|---|
| Announcement | BMO is winding down its retail auto finance business in Canada and the United States, resulting in job losses. |
| Reason | Increase in bad debt provisions due to growing stress on consumers from rising borrowing costs. |
| Support | BMO is working closely with affected employees to provide support during job cuts. |
| Effective Date | Termination of dealer agreements effective September 15th, but existing contracts will be honored. |
| Business Focus | Concentrating resources on areas where BMO believes it’s most competitive. |
| Auto Financing | Providing financing to vehicle sellers instead of buyers, with substantial growth in this sector. |
| Loan Portfolio | Retail auto business loans rose by about 34% in the third quarter, making up 2.7% of total loans. |
| Economic Impact | Rising interest rates are slowing the Canadian economy, leading to increased provisions for credit losses. |
| US Expansion | BMO’s acquisition of Bank of the West has expanded its presence in the western United States. |
| Profit Source | More than a third of BMO’s overall profits now come from the United States. |
In a letter to car dealers, Paul Hunsley, the head of the business, said the dealer agreements would be ended starting on September 15th. But the bank will still keep all the contracts that were submitted and approved before this date.
In their retail auto finance business, BMO provides financing to the sellers of vehicles rather than directly to the buyers. These buyers then make monthly payments to the bank. This part of their business had grown by about 34% in the third quarter compared to the previous year, reaching 17.36 billion Canadian dollars. It made up about 2.7% of the bank’s total loans.
The Canadian economy is currently slowing down because interest rates are rising quickly. To prepare for more people not being able to repay their loans, banks like BMO are putting aside more money as a cushion. Last month, BMO set aside 492 million Canadian dollars for credit losses, which is a big increase compared to the 136 million Canadian dollars they set aside a year earlier. They also mentioned that losses in the United States increased in the retail trade sector.
BMO has been looking for ways to grow outside of Canada because the Canadian market is already very competitive. Earlier this year, they spent 16.3 billion dollars to acquire Bank of the West, which allowed them to expand their presence in 32 states in the western United States, including California. Now, more than a third of BMO’s overall profits come from the United States.
