Toronto-Dominion and other Canadian banks are suffering from a rise in credit-card losses from clients such as Koglin, who cut up her Visa card in December after skipping payments. Four of the country’s biggest banks set aside 51 percent more cash on average in the first quarter for card losses, and these costs may rise further this year, bank executives said.
“If there’s another shoe to drop, credit cards are going to be it,” said John Kinsey, who manages about C$1 billion including bank stocks at Caldwell Securities Ltd. in Toronto. “It’s probably going to be the Achilles heel this year for the banks.”
Credit-card delinquencies and losses have risen with higher unemployment and personal bankruptcies, according to Moody’s Investors Service. Those trends will continue through 2009, even as issuers reduce credit limits and scale back on offers to entice clients.
Rising Losses
Canadian card losses in the third quarter rose to 3.1 percent of average balances, the seventh straight period of year- over-year increases, according to Moody’s. By comparison, U.S. card losses rose to 6.6 percent of balances.
In the U.S., consumer credit is shrinking faster than estimates and credit-card line reductions are the greatest on record, analyst Meredith Whitney of Meredith Whitney Advisory Group LLC said yesterday in a note. About $2.7 trillion worth of credit lines will be removed from U.S. consumers due to the credit crisis and regulatory changes, 35 percent higher than her November estimate, Whitney said.
Canadian Imperial Bank of Commerce, the country’s No. 5 bank, set aside C$152 million for card losses for the period ended Jan. 31, nearly double a year ago. Royal Bank of Canada earmarked C$83 million, a 28 percent increase, while Bank of Montreal reserved C$56 million for losses in its MasterCard portfolio, up 47 percent.
Slower Growth
Canadian Imperial, Canada’s largest card issuer, is “slowing growth” of credit cards, says Chief Executive Officer Gerald McCaughey. Cards were the second-biggest revenue generator for CIBC’s consumer bank in 2008, bringing in C$1.75 billion.
“The card portfolio continues to grow, but at a much slower rate,” McCaughey told reporters after the bank’s annual meeting in Vancouver on Feb. 26. “In difficult times it’s quite normal that you would slow the growth of credit granting.”
CIBC has the most consumer credit-card loans among Canada’s five-biggest banks with C$10.5 billion, representing 6.3 percent of total loans, according to filings. Royal Bank of Canada has the second highest, followed by Toronto-Dominion, Bank of Nova Scotia and Bank of Montreal.
Royal Bank CEO Gordon Nixon said he’s more concerned about rising defaults from credit cards than mortgages in the recession. Toronto-based Royal Bank, the country’s biggest lender, had C$8.93 billion in credit-card loans as of Jan. 31.
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