Canada’s BMO to Close Indirect Retail Auto Finance Business, Flags Job Losses

TORONTO, Sept 18 (Reuters) – Bank of Montreal (BMO) (BMO.TO) has announced plans to wind down its indirect retail auto finance business and shift its focus to other areas, a move that will result in an unspecified number of job losses, according to Canada’s third–largest bank.

BMO has conducted this business in both Canada and the United States. The decision comes after BMO reported an increase in overall bad debt provisions to C$492 million for the quarter ending July 31, compared to C$136 million a year earlier. This rise signifies the growing stress consumers face due to a rapid increase in borrowing costs.

In the indirect retail auto finance business, the bank collaborates with car dealerships to arrange financing for buyers, who then make monthly payments to the lender.

“We are winding down the indirect retail auto finance business to focus our resources on areas where we believe our competitive positioning is strongest,” said BMO in a statement to Reuters.

The bank is working closely with employees affected by the job cuts to provide support, according to their statement.

In a letter sent to car dealers and seen by Reuters, the head of the business, Paul Hunsley, stated that the termination of the dealer agreement would be effective as of Sept. 15. However, the bank would fund all contracts submitted and approved prior to this date.

As of the end of July, BMO’s consumer installment and other personal loan portfolio stood at C$104 billion, including C$54.7 billion in home equity loans.

Edward Jones analyst James Shanahan noted that the remaining loans in this portfolio are primarily auto loans, but also include loans for boats, recreational vehicles, and motorcycles.

Bank of Canada’s data has revealed that delinquency rates for vehicle loans are now higher than they were before the pandemic, underscoring the strain on consumers’ wallets as they also grapple with repaying their mortgages in a high-interest rate environment.

The rapid rise in interest rates is slowing down the Canadian economy, prompting banks to set aside more funds to deal with an expected increase in bad loans.

BMO has been looking to the United States for new growth opportunities, given the saturated markets in Canada. The bank spent $16.3 billion this year to acquire Bank of the West and expand its presence in 32 states in the western United States, including California.

As of now, the United States accounts for more than one-third of BMO’s overall profits.

(Correction: This story has been updated to accurately state that the US accounts for more than a third of BMO’s overall profit, not two-thirds, in paragraph 12)

Reporting by Nivedita Balu in Toronto Editing by Denny Thomas, Jane Merriman, Susan Fenton, Will Dunham, and Diane Craft