B2 | RE P O RT O N BUS I N ES S
TD chief sees tough times before recovery
Masrani says bank’s
models show North
American economy
growing in late 2020
and back to precrisis
levels early in 2021
ANDREW WILLIS
JAMES BRADSHAW
B
harat Masrani predicts that
by late summer, the North
American economy will
take the first steps in a spirited re-
covery from a global pandemic.
But Toronto-Dominion Bank’s
chief executive expects some
dark days between now and then,
based on the “terrible” times the
bank’s customers are experienc-
ing as the new coronavirus
sweeps through New York.
TD has more branches along
the U.S. eastern seaboard – 1,220 –
than in all of Canada, and Mr.
Masrani said New York is like the
bank’s second home. That puts
TD at the front lines in the United
States as it helps customers cope
with the COVID-19 pandemic.
Before he became CEO, Mr.
Masrani spent seven years run-
ning the bank’s U.S. operations,
with 26,000 employees, and built
deep ties with employees and cli-
ents in the Big Apple. The situa-
tion he’s watching unfold in New
York is having a “deep psycholog-
ical impact” on one of the world’s
leading financial centres, he said
in an interview on Friday.
“New York is going through a
really rough patch,” Mr. Masrani
said. “The [pandemic] peak is go-
ing to probably be earlier, but it’s
going to be a much steeper and a
higher peak than what people
were expecting.”
He praised Canadian leaders
for appearing to react faster to the
pandemic by introducing social
distancing and business closings
earlier than many of their U.S.
counterparts. “Now, let’s hope
that [New York] is not the picture
in other major metropolitan ar-
eas like Toronto. It does not ap-
pear to be, but this is so unpre-
dictable.”
Looking a few months down
the road, TD’s boss said he thinks
individuals and businesses
should be able to bounce back
relatively quickly from this crisis,
as it stems from a health-care
problem, rather than the deep-
Three big banks lower credit-card interest rates for some clients
JAMES BRADSHAW
BANKING REPORTER
Three of Canada’s largest banks
are lowering credit-card interest
rates for some customers under
financial pressure due to the new
coronavirus in a move that still
seemed unlikely only days ago.
Canadian Imperial Bank of
Commerce was the first major
bank to announce it will tempo-
rarily drop interest rates on per-
sonal credit cards to 10.99 per
cent for clients who are ap-
proved to skip payments. About
80,000 clients have already ap-
plied for relief from card pay-
ments for up to two months, and
the lower rate will be applied ret-
roactively to March 15, the bank
said Friday.
Within hours, Royal Bank of
Canada announced it will reduce
credit-card interest charges by 50
per cent for those receiving pay-
ment deferrals on personal or
small business credit cards. Na-
tional Bank of Canada soon fol-
lowed, lowering card rates to 10.9
Banking regulator willing to continue easing capital requirements for lenders
MARK RENDELL
JAMES BRADSHAW
The head of Canada’s banking
regulator says he’s prepared to
further reduce minimum capital
requirements for banks if the ec-
onomic fallout of novel corona-
virus chews into capital reserves
and challenges banks’ capacity
to keep lending through the cri-
sis.
Canadian lenders will be un-
der pressure in the coming
months as soaring loan losses
and demand for credit squeeze
the cushions of capital that
banks are required to maintain.
In response, the Office of the Su-
perintendent of Financial Insti-
tutions will make additional cuts
to the domestic stability buffer
as required, OSFI superintendent
Toronto-Dominion chief
executive Bharat Masrani
has praised Canadian
leaders for responding
more quickly to the
COVID-19 pandemic
than some of their U.S.
counterparts. He says the
biggest goals for banks
right now are keeping
employees safe and
working with
government agencies
to deliver money from
support programs to
customers as fast
as possible.
MAY TRUONG/
THE GLOBE AND MAIL
per cent for clients granted de-
ferrals, and promising to com-
pensate customers for extra in-
terest added to deferred mort-
gage payments – a charge that
has proven a sore spot for clients
seeking relief.
Desjardins Group, the coun-
try’s largest financial co-oper-
ative, had said on Thursday that
it will reduce interest rates on
personal cards to 10.9 per cent
automatically for clients who ob-
tain payment deferrals on a fi-
nancing product.
The moves are an abrupt
change of course for Canada’s
banks, which were caught flat-
footed last week when Prime
Minister Justin Trudeau said his
government was in talks with fi-
nancial institutions about credit-
card interest rates. That same
day, the Prime Minister’s staff
clarified that he wasn’t specifi-
cally calling for cuts to existing
credit-card rates, but discussing
ways to alleviate the burden
those rates place on some Cana-
dians.
Banks have mostly moved in
Jeremy Rudin said in an inter-
view on Friday.
He did not give any indication
as to whether OSFI will also ask
banks to cut dividends. British
and European regulators urged
banks to stop payments to inves-
tors this week, and on Wednes-
day the U.K.’s largest banks said
they were halting dividend pay-
ments.
When asked if OSFI would fol-
low suit, Mr. Rudin noted the rel-
ative strength of Canadian bank
capital levels and said that OSFI
is taking an incremental ap-
proach in response to the crisis.
OSFI has already asked banks
not to raise dividends or to buy
back shares.
“We’ll stand ready to release
some or all of the rest of [the
domestic stability buffer], and
that’s plan B. If and when we
seated economic issues respon-
sible for most recessions. Mr. Mas-
rani said internal models show
the North American economy
growing by the third or fourth
quarter this year and back to pre-
crisis levels early in 2021. But he
cautioned: The model is only as
good as the data, and “every day it
changes, based on new data.”
TD bankers are already talking
to corporate clients about the fi-
nancial support needed to get
their businesses running once re-
strictions are lifted, Mr. Masrani
said: “We have to make sure the
number of permanent job losses
in minimal.”
Right now, Job 1 at TD and rival
banks is keeping employees safe
and working with government
agencies to deliver money from
support programs to customers
as quickly as possible. When it
comes to getting cash to clients,
Mr. Masrani said its building of
U.S. branches – or what TD calls
“stores” – now seems prescient,
with their drive-through outlets
lockstep to announce major re-
lief programs, which include
payment deferrals on mortgages
and other loans as well as inter-
est-free loans for small business-
es to be launched next week. But
as pressure mounted to give fur-
ther relief on credit-card interest
costs to those who are most af-
fected by COVID-19, CIBC acted
without waiting for competitors
to be ready.
The Bank of Nova Scotia is
“committed to implementing
new additional measures” to
help customers, and has given
payment relief to more than
120,000 clients so far, a spokes-
person said.
Banks have rushed to roll out
sweeping relief programs in re-
cent weeks, and the six largest
lenders have granted or begun
processing nearly 500,000 re-
quests to defer or skip mortgage
payments.
The Big Six have collectively
deferred payments on more than
10 per cent of the mortgages in
their portfolio, according to the
Canadian Bankers Association.
have to roll out plan B, by then,
for sure we’ll know what plan C
is,” Mr. Rudin said.
OSFI already cut the domestic
stability buffer – which is built
up during periods of economic
strength, to be released in a
downturn – by 1.25 percentage
points, from 2.25 per cent to 1 per
cent, freeing up an estimated
$300-billion worth of lending ca-
pacity at the Big Six banks.
“This is an extraordinary sit-
uation, and things are happen-
ing at an extraordinary pace. I
don’t know if we will be obliged
to make another decision about
the domestic stability buffer, and
I certainly don’t know when. All I
know is we stand ready to do it,”
he said.
Mr. Rudin’s comments fol-
lowed a statement OSFI put out
on Friday reassuring Canadians
G THE GLOBE AND M AIL
that resemble fast-food restau-
rants. At some of those branches,
TD has pneumatic tubes to shoot
transaction documents from the
customer’s car to the teller and
back with no direct human con-
tact.
TD is ramping up the digital
services it offers to clients, a shift
that Mr. Masrani said he expects
will be permanent. As part of its
response to COVID-19, TD is mak-
ing greater use of predictive artifi-
cial intelligence software, much
of which the bank acquired in
2018 when it bought AI company
Layer 6. “We were able to predict
which of our customers are going
to go through financial hardship
even before the customer knew,”
he said.
Since the pandemic began to
have a significant impact on
North American businesses last
month, Mr. Masrani said credit
markets have closed, then re-
opened. In mid-March, TD’s cor-
porate clients, including Alberta-
based energy companies, aggres-
But they have also faced frustra-
tion from many customers who
are feeling intense pressure as
job losses mount and physical-
distancing measures are extend-
ed.
“What we’re seeing, because
we’re listening to Canadians, is
that it’s not enough. There’s still
a lot of stress in the system and
people feel we need to do more,”
Laura Dottori-Attanasio, CIBC’s
head of personal and business
banking, said in an interview.
Credit-card interest “is anoth-
er area of financial burden for
Canadians so we think we should
actually do something about it.
So that’s really what’s driven
this,” she said.
Not everyone will get the low-
er interest rate. Customers will
still have to apply for payment
deferrals to qualify, and CIBC’s
lower rate does not apply to
business credit cards.
However, CIBC is also relaxing
terms on a feature launched last
fall that allows customers to pay
off some credit-card purchases
on an instalment plan at interest
of the soundness of the country’s
financial system.
“We want people to know that
the financial system and the sta-
bility of that system is one less
thing to worry about,” Mr. Rudin
said.
“Our financial system is well-
capitalized, it’s very resilient, it’s
well-prepared for what we’re
about to go through.”
Canadian banks fared relative-
ly well during the last financial
crisis, and kept dividends intact
through 2008 and 2009.
Canadian banks’ more conser-
vative approach to capital re-
quirements and risk manage-
ment puts them on a solid foot-
ing compared to their British or
European counterparts, several
bank analysts noted this week.
“The Canadian banks’ capital
position remains quite strong,”
| SATUR DAY, A P R IL 4, 2020
sively tapped lines of credit and
other borrowing facilities, be-
cause other sources of capital,
such issuing corporate bonds,
dried up. He said TD was able to
meet this demand because it
went into the crisis without “the
baggage” of large numbers of bad
loans, with strong capital ratios
and experienced credit teams.
“We have this motto at TD for
many years now that we don’t
make bad loans during good
times, in order to allow us to
make good loans in bad times,”
said Mr. Masrani, who is also the
bank’s former chief risk officer.
In the past two weeks, Mr. Mas-
rani said the investment-grade
bond market “has been on fire,”
and companies have been able to
issue debt, lessening the demand
for credit facilities at banks. He
said corporate borrowers are pay-
ing higher interest rates com-
pared to earlier this year – “it’s the
new normal” – but capital is avail-
able to companies with solid
credit ratings.
rates of 5.99 to 7.99 per cent.
CIBC will refund the usual 1.5-
per-cent fee for using the instal-
ment plan until June 30, and
lower the minimum eligible pur-
chases to $100, from $250.
Late Thursday, the Canadian
Labour Congress launched a
campaign to pressure banks to
lower interest rates on credit
cards, citing rate cuts by the
Bank of Canada that have low-
ered some borrowing costs. Has-
san Yussuff, the CLC’s president,
still thinks lower rates “should
be available to all those who
have credit cards.”
Cutting interest rates will eat
into banks’ profits, but could
help control an anticipated spike
in loan losses.
“Losing a little bit of profit-
ability in the near term is far bet-
ter than putting a client into
bankruptcy, not just from a long-
term business and earnings
standpoint but also because
public relations will be critical as
we navigate through the crisis,”
said John Aiken, an analyst at
Barclays Capital Canada Inc.
Barclays analyst John Aiken
wrote in a note on Wednesday.
“Should the situation become
dire, we believe that the banks
would consider raising capital
before cutting the dividend, sim-
ilar to what occurred with the
group in 2008.”
Mr. Rudin did warn, however,
that the path to economic recov-
ery will be long, and the regu-
latory response needed to get
through coming months and
years remains uncertain.
“I think it’s clear that the tran-
sition to the new normal, what-
ever it’s going to be, is going to
have to be gradual, not abrupt,”
Mr. Rudin said.
“What exactly we’ll need to do
at that time will depend on
where we’ve gotten to, and
there’s a sense in which we’re
just getting started.”