A series of quarterly results reports from Europe are laying bare the punishing effect on lenders of the initial Covid-19 outbreak in the region. For Barclays, pre-tax profits fell by three quarters, while Santander, sharply exposed to the crisis given its strong presence in Spain, Brazil and the United Kingdom, swung to an €11 billion loss, a first for the firm in over a century and a half of banking. In Britain, Barclays and Santander combined saw just over three-quarters of a million borrowers go on payment holidays, with one in ten of the latter's personal loan borrowers there pausing payments. Impairments connected with Covid-19 left Santander's Return on Tangible Equity (ROTE) down at 5.19 percent at the end of the quarter; chief executive Ana Botín is looking for a return to the 13-15 percent range in the medium term. Lloyds Bank meanwhile also tipped into losses for the quarter, with results torpedoed by a more-than-expected £3.8bn ($5bn) charge to cover the prospect of soured loans. Natwest Group (formerly known as RBS Group) rounded out a gloomy week of results with an ROTE of minus 4.4 percent for the first half of the year, compared to 12.1 percent a year earlier.
Visa and Mastercard also released their latest quarterly results this week, and both show that the major cards schemes have managed to balance out the hit to spending from the unprecedented unemployment spike through reduced operating costs. In Mastercard's case, operating expenses as a whole fell by five percent for the quarter. The news following an earnings report last week from American Express, which showed an 85 percent fall in profits on set-asides of almost $628 million to cover possible defaults from cardholders hit by pandemic layoffs and other economic impacts. Meanwhile, Senator Richard Durbin, who crafted the eponymous amendment to 2010's Dodd-Frank Act that limits debit card processing fees, has written to the US Federal Reserve drawing attention to what he feels are card industry practices that are harming the operating environment for retailers and smaller debit-card networks.
Readers will recall March's Supreme Court ruling in Madrid which found that a 27.24 percent APR on revolving credit cards was usurious compared to other rates for such cards in Spain. In its long-awaited response, the Ministry of Economy has declined to set a limit on the APRs charged on revolving credit card loans. However, the authorities are going to scrutinise the balance sheets of both borrowers and lenders more closely than hitherto, tightening the regulatory obligations on the latter. "On the one hand," commented Patrick Houlihan of Verisk Financial Research, "the Ministry does not want to curtail the flow of credit to cardholders when many are feeling the economic squeeze due to the pandemic. On the other hand, it is possible that the government does not want to alienate other credit card issuers, who have adopted a more cautious attitude to extending such debt in the aftermath of the court ruling. This drama may have another episode or two in store as the ruling has created uncertainty, and the Ministry is seemingly unwilling to make a definitive ruling for its part."
A revealing clash is emerging in Australia, where Buy now, pay later (BNPL) companies are currently drawing up a self-regulatory code of conduct. Market leader Afterpay has taken a very different view of customer credit checks than its multinational rival, Klarna, which reportedly checks on borrowers' credit at every opportunity. The implications of this conflict reach far beyond the antipodes' biggest market: as reported in this newsletter earlier this month, Afterpay added more than a million new customers in the United States between March and early May; Klarna too has seen a rise in business, with partnership-seeking enquiries up by a fifth in March alone.
To end, links to some other stories of interest this week...
Brazil: Set to leap from cash to real-time digital payments
Europe: ECB extends dividend ban, capital relief for banks
Germany: Financial regulations to be beefed up
Italy: Intesa secures full control in the takeover battle for UBI
UK: Banks withdraw cashback incentives
The Weekly News Digest from Argus Advisory Research highlights significant developments in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value often missing from the rolling news cycle.
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