Weekly News Digest 1 May 2020

Financial results the world over weighed down by loan loss provisions, while new spending preferences hit cash hardest

At the end of last year, American Express had a particular milestone to celebrate: "virtual parity" with Visa and Mastercard when it came to bricks-and-mortar merchant agreements in its domestic market. The announcement was made possible by the company having added no less than one million merchants to its US network in 2019. That had taken an inordinate corporate effort, one that had been a top priority for chief executive and president Stephen Squeri when he took over from Kenneth Chenault the year before. Now, a single quarter later, it is a case of exercising the utmost patience before accruing the benefits as those retail outlets remain largely shut. The company's spending budget has been abruptly slashed by three billion dollars; no wonder, with profits having fallen by 76 percent for the quarter just ended and net income down to $367 million from $1.55 billion in the same period last year. Mastercard meanwhile has reported a 40 percent rise, year-on-year, in the number of transactions online and a rise in contactless payments by the same percentage: profits fell, but earnings beat analysts' expectations.

With so much of its credit card lending taking place in Britain and America, two of the countries hardest hit by the Covid-19 crisis, Barclays' credit card division seems destined to experience significant losses. The London-headquartered firm has put aside £2.1bn in loss provisions for the quarter just ended and estimated this week that it may have to put aside more than twice that amount before the year is out. As noted in our latest market report for the United Kingdom, Barclays is the only leading issuer in that country that is also one of the leading merchant acquirers, leaving it especially vulnerable to the unprecedented shutdown of high streets up and down the country.

Two other London-based banks, by contrast, share a focus that tends towards the Pacific rather than the Atlantic: in the case of HSBC, $3 billion has been set aside to cover bad loans caused by the pandemic. The bank also temporarily suspended plans to let 35,000 staff go in light of the hardship they would face in a transformed jobs market, while quarterly profits have been halved. The other major British bank with significant interests in Asia, Standard Chartered, had a comparatively easier ride, with the fall in profits only coming to 12 percent. Contrast that with the 95 percent plunge at Lloyds: according to the lender, 200,000 of its customers have delayed their credit card payments, with double that number now on mortgage holidays. The British unit of Santander saw first-quarter profits down by 58 percent; its parent company put aside €1.6 billion for potential loan losses, with profits down by 82 percent. But profits reversal at fellow Spanish bank BBVA went proportionally further than them all, swinging to a loss of €1.79bn ($1.94bn), compared to a profit of €1.18bn this time last year.

In Australia, financial services regulator ASIC has fast-tracked the approval process to allow half a million debit cards to be issued for use by those who have preferred cash until now but find that age-old medium of exchange suddenly undesirable or, in some establishments, no longer even accepted. As with their counterparts in the northern hemisphere, bad loan provisions have been the order of the day in the ongoing round of financial results, with some observers fearing that the amounts involved for the Big Four banks could reach 35 billion Australian dollars ($22.8bn) over the coming three years. An article in the Australian Financial Review looks at the debate over forecast scenarios that has been dividing analysts and bank executives: "We may be completely right or completely wrong," said National Australia Bank's chief executive Ross McEwan, "But, either way, having more capital is a good thing".

To end, links to some other stories of interest this week...

China: Big banks post profit growth, though margins shrink
Germany: Deutsche surprises with quarterly revenue beat
Global: Adyen first-quarter revenues surge on online payments
Kenya: Visa gives Safaricom's M-Pesa missing link for global payments
S. Korea: Internet-only Kakao Bank adding credit card service
US: Stripe adds card issuing services