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BMO’s Pricing Strategy & Market Share

BMO BMO says its mortgage balances grew 0.5% last quarter. It was the first such increase since it exited the broker market in 2007.

“We are successfully replacing the runoff of our broker-channel loans with our branch originated (mortgages),” says BMO, whose quarterly market share decreased once again.

BMO now owns an estimated 9.3% of the mortgage market, a number that’s been falling for several quarters.

BMO is hungrily trying to recoup that share, partly by slashing advertised rates.  Two examples are its 3.79% low-frills 5-year fixed and its 4.95% 10-year fixed. They’re the lowest advertised rates by any national lender for these terms. (Of course, brokers and branches can and will do better for well-qualified applicants.)

This, of course, begs the question:  Will BMO’s overt rate competition pay off?

ING Direct is widely credited with starting the deep-discount mortgage rate model in the late 1990s. Since then, TD, RBC, and BMO have each taken a stab at the “no haggle” below-market pricing model. The result was that their margins collapsed, driving each of them back to the more concealed and profitable “selective-discounting” strategy.*

It remains to be seen if BMO sticks it out this time, and if any other Big 6 banks follow its lead. CIBC has come the closest with its cash-back switch program. But, while the switch program had fantastic effective rates, CIBC’s nominal (advertised) rates haven’t had the sizzle of BMO’s.

If competitors do join BMO in openly advertising deep-discount rates, margins will fall all around and BMO may be no better off.

So far, however, BMO says it’s “pleased with the success” of its new rate promotions. “Our goal is to grow market share and we remain focused on improving the business through investment in the sales force and achieving productivity gains.”


Partial Sources: BMO Q3 Report, BMO Q3 Presentation

*  Selective discounting is where a bank provides its best rates only to those who negotiate for them.