BMO Financial Group has publicly announced its intention to conclude operations of its retail auto finance division. The calculated move is aimed to divert its resources and mitigate the effects of an increase in bad debt. This also implies an inevitable wave of redundancies across both Canada and the United States, though the specific number remains unspecified.
This strategic decision follows a significant rise in the company’s bad debt provision, which increased more than threefold reaching $492 million in the quarter ending July 31, in comparison to the same period the previous year.
Within the retail sector itself, a staggering 800 per cent surge was witnessed in the bank’s provisions for credit losses. It jumped from $9 million to $81 million from the previous year, which laid bare the increased financial stress amongst consumers. The escalating interest rates over the course of the past eighteen months have proven to be a burden for many, resulting in decreased lending demands and stunted deal-making.
The Bank of Montreal, through its indirect retail auto loan segment, usually facilitates auto financing for customers via car dealerships, who then receive monthly payments from these customers. The impending cessation, however, does not impact BMO’s commercial banking division, which provides backing to auto dealers via inventory financing.
BMO Financial Group’s spokesperson, Jeff Roman, commented on the move to stall the indirect retail auto finance business. He noted that this enables the bank to focus its resources on sectors where its competitive advantage is most pronounced. However, Roman didn’t indicate a specific timeline for when this cessation agreement would take full effect.
Addressing the layoffs, Roman assured that BMO is providing its full support to the affected employees and will ensure they are dealt with dignity and fairness. As of the past quarter, the pre-tax layoffs costs accounted for $223 million, however, the exact number of employees laid off remains undisclosed.
