(Amends last paragraph to say US accounts account for one-third of BMO’s total profits, not two-thirds)
In Nivedita Balu
TORONTO (Reuters) – Bank of Montreal (BMO) is winding down its retail auto finance business and shifting its focus to other areas, resulting in an undisclosed number of job losses, Canada’s third-largest bank said on Saturday.
The move, which took effect in Canada and the United States, came after BMO’s bad debt provisions in the retail business fell to C$81 million ($60 million) in the quarter ended July 31, after recovering to C$9 million from a year earlier, in a sign of growing concern among consumers about the rapid rise in borrowing costs. They face each other.
“By shrinking the indirect retail auto finance business, we have the ability to focus our resources on areas where we believe our competitive advantage is strongest,” BMO said in a statement to Reuters.
The bank also stated that it is working closely with the employees affected by the job cuts.
In a letter to car dealers and seen by Reuters, trading chief Paul Hensley said the termination of the dealer deal would take effect on September 15, but the bank would fund all deals entered into and approved before that date.
In indirect retail auto financing, the bank provides financing to the vehicle seller, not the buyer, who pays the monthly installments directly to the lender.
Total loans in the retail auto business rose 34% to C$17.36 billion in the third quarter from a year earlier, and accounted for 2.7% of the bank’s total loans, according to BMO’s latest financial report released in August.
A sharp rise in interest rates is slowing Canada’s economy, and banks are setting aside more cash to deal with an expected rise in bad loans. Last month, BMO’s loan loss provision rose to C$492 million, up from C$136 million a year ago.
It said business-related losses in the United States rose 10 basis points from the previous quarter, led by larger offers in the retail sector.
BMO is turning to the United States for new avenues of growth after spending $16.3 billion to acquire Bank of the West earlier this year and expanding into 32 states in the western United States, including California, while markets remain saturated in Canada.
The United States now accounts for more than a third of BMO’s total profits.
(Reporting by Nivedita Balu in Toronto Editing by Denny Thomas, Jane Merriman and Susan Fenton)