Td Chief Sees Tough Times Before Recovery

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G THE GLOBE AND M AIL

RE P O RT O N BUS I N ES S

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SATUR DAY, A P R IL 4, 2020

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

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harat Masrani predicts that by late summer, the North American economy will take the first steps in a spirited recovery 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 experiencing 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 running the bank’s U.S. operations, with 26,000 employees, and built deep ties with employees and clients in the Big Apple. The situation he’s watching unfold in New York is having a “deep psychological 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 going 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 areas like Toronto. It does not appear to be, but this is so unpredictable.” 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-

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

seated economic issues responsible for most recessions. Mr. Masrani said internal models show the North American economy growing by the third or fourth quarter this year and back to precrisis 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 financial support needed to get their businesses running once restrictions 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

that resemble fast-food restaurants. 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 contact. 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 making greater use of predictive artificial 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 reopened. In mid-March, TD’s corporate clients, including Albertabased energy companies, aggres-

sively tapped lines of credit and other borrowing facilities, because 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. Masrani 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 paying higher interest rates compared to earlier this year – “it’s the new normal” – but capital is available to companies with solid credit ratings.

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 temporarily drop interest rates on personal credit cards to 10.99 per cent for clients who are approved to skip payments. About 80,000 clients have already applied for relief from card payments for up to two months, and the lower rate will be applied retroactively 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 payment deferrals on personal or small business credit cards. National Bank of Canada soon followed, lowering card rates to 10.9

per cent for clients granted deferrals, and promising to compensate customers for extra interest added to deferred mortgage payments – a charge that has proven a sore spot for clients seeking relief. Desjardins Group, the country’s largest financial co-operative, had said on Thursday that it will reduce interest rates on personal cards to 10.9 per cent automatically for clients who obtain payment deferrals on a financing product. The moves are an abrupt change of course for Canada’s banks, which were caught flatfooted last week when Prime Minister Justin Trudeau said his government was in talks with financial institutions about creditcard interest rates. That same day, the Prime Minister’s staff clarified that he wasn’t specifically calling for cuts to existing credit-card rates, but discussing ways to alleviate the burden those rates place on some Canadians. Banks have mostly moved in

lockstep to announce major relief programs, which include payment deferrals on mortgages and other loans as well as interest-free loans for small businesses to be launched next week. But as pressure mounted to give further relief on credit-card interest costs to those who are most affected 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 spokesperson said. Banks have rushed to roll out sweeping relief programs in recent weeks, and the six largest lenders have granted or begun processing nearly 500,000 requests 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.

But they have also faced frustration from many customers who are feeling intense pressure as job losses mount and physicaldistancing measures are extended. “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 another 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 lower 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

rates of 5.99 to 7.99 per cent. CIBC will refund the usual 1.5per-cent fee for using the instalment plan until June 30, and lower the minimum eligible purchases 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 lowered some borrowing costs. Hassan 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 profitability in the near term is far better than putting a client into bankruptcy, not just from a longterm 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.

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 economic fallout of novel coronavirus chews into capital reserves and challenges banks’ capacity to keep lending through the crisis. Canadian lenders will be under 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 Superintendent of Financial Institutions will make additional cuts to the domestic stability buffer as required, OSFI superintendent

Jeremy Rudin said in an interview 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 investors this week, and on Wednesday the U.K.’s largest banks said they were halting dividend payments. When asked if OSFI would follow suit, Mr. Rudin noted the relative strength of Canadian bank capital levels and said that OSFI is taking an incremental approach 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

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 capacity at the Big Six banks. “This is an extraordinary situation, and things are happening 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 followed a statement OSFI put out on Friday reassuring Canadians

of the soundness of the country’s financial system. “We want people to know that the financial system and the stability of that system is one less thing to worry about,” Mr. Rudin said. “Our financial system is wellcapitalized, it’s very resilient, it’s well-prepared for what we’re about to go through.” Canadian banks fared relatively well during the last financial crisis, and kept dividends intact through 2008 and 2009. Canadian banks’ more conservative approach to capital requirements and risk management puts them on a solid footing compared to their British or European counterparts, several bank analysts noted this week. “The Canadian banks’ capital position remains quite strong,”

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, similar to what occurred with the group in 2008.” Mr. Rudin did warn, however, that the path to economic recovery will be long, and the regulatory response needed to get through coming months and years remains uncertain. “I think it’s clear that the transition to the new normal, whatever 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.”