# Bank of Montreal to Wind Down Retail Auto Finance Business
In an announcement on Saturday, Canada’s third largest bank, the Bank of Montreal (BMO), disclosed plans to wind down its retail auto finance business. As part of a strategic shift towards other areas of focus, this move will result in an unspecified number of job losses.
This decision will be applicable in both Canada and the United States. It comes after BMO’s bad debt provisions in retail trade surged to C$81 million ($60 million) in the quarter ended July 31. This is compared with a recovery of C$9 million a year ago, indicating the escalating stress consumers are facing due to the rapid rise in borrowing costs.
## BMO to Focus on Competitive Areas
In a statement to Reuters, BMO explained, “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 working closely with employees who will be affected by job cuts to provide support.
In a letter sent to car dealers and seen by Reuters, Paul Hunsley, the head of the business, 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 the date.
## Rapid Rise in Interest Rates
The indirect retail auto finance business model involves the bank providing financing to the vehicle seller instead of directly to the buyer, who makes monthly payments to the lender. Gross loans in BMO’s retail auto business rose about 34% in the third quarter from a year earlier to C$17.36 billion, accounting for 2.7% of the bank’s overall loans, according to BMO’s latest financial report released in August.
Banks are setting aside more funds to deal with an expected pick up in bad loans as a rapid rise in interest rates slows the Canadian economy. Last month, BMO announced that provisions for credit losses rose to C$492 million, compared with C$136 million a year earlier.
The bank noted that commercial impaired losses in the United States were up 10 basis points from the prior quarter, driven by a large provision in the retail trade sector.
## BMO’s Expansion in the U.S.
BMO has been expanding into the United States in search of new growth avenues as markets remain saturated in Canada. The bank spent $16.3 billion to acquire Bank of the West earlier this year and expand into 32 states in the western United States, including California. As of now, the United States accounts for more than a third of BMO’s overall profits.
Original Story at www.reuters.com – 2023-09-17 14:31:00
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