Industry Committee on Oct. 28th, 2024

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Sure.

Mr. Siromani, go ahead.

[Ramesh Siromani]

It's a finely balanced ecosystem, and many factors go into that, making up the receipt and the charge—

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Sure.

What about the other two banks?

[D'Arcy McDonald]

I think we would be similar. It depends on the policy objective that you're seeking. Dropping interchange would require us to recalibrate the value propositions for our products.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

What about the last bank? I think there's one more.

[Meg McKee]

Yes, my answer would be very similar to what we heard.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

The reason I ask this is we know that the Reserve Bank of Australia sets the credit card interchange rates at a weighted average benchmark of 0.5% of the transaction value, and there's a ceiling of 0.8%. We know that the U.S. does not regulate this. In the EU, the interchange rate is at 0.3%.

The reason I state these figures is that, contrary to what Mastercard said, which is they want to make card issuance attractive for you guys, the banks in Australia or the EU haven't run away from credit cards and haven't stopped offering credit cards just because interchange fees are obviously much lower than they are here in Canada. It's still attractive for them to engage in card issuance.

I also want to echo comments from my colleagues around the table who have said that they'd like to see a breakdown of that revenue, what percentage you make off interchange fees and what percentage you get to keep.

We keep hearing in testimony as well that it's very expensive to engage in this business of issuing credit cards. We'd like to see a breakdown by every single bank of what the real costs are for participating in credit card issuance and then what interchange fees you're making off of it, essentially the cost, the revenues and then the net profits that you make off of this. You guys are public corporations. Your shares are owned by the Canadian public, and I think they should know the breakdown of your participation in this industry.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Gaheer.

Mr. Perkins now has the floor for five minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair. I'm going to start in order.

When I worked at a bank at Bay and King, the primary big measure, the starting point measure for everyone's performance individually and collectively as employees was the overall return on equity.

What's the return on equity target for the Bank of Montreal this year?

[Jennifer Douglas]

I believe our year-to-date return on equity from the last results was 10.7%.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Okay.

I'll go to the CIBC.

[Diane Ferri]

I don't think I'm able to comment on the target for our return on equity. Our return on equity would be similar to what Jennifer Douglas just indicated.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

No, it isn't. It was 16.3% last quarter—sorry, 13.3%.

I'll go to the Royal Bank.

[Ramesh Siromani]

We target about 16%.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

It's 16%.

Would TD respond?

[Meg McKee]

I don't have the exact number at my fingertips; my apologies.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

It's a fundamental measure that you guys are all judged on. It hasn't changed in the history of the banks.

I won't ask you to divulge the profit that you make or the profit margin. I get that you want to be secretive of that on credit cards. You each run your credit card divisions.

What's the return on equity, the profit per shareholder, the return on equity percentage you make on your credit card business?

This is for the Bank of Montreal.

[Jennifer Douglas]

I'm sorry. Can you clarify the question?

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

You have a return on equity measure for the overall profitability of your credit card business. What is it?

[Jennifer Douglas]

From a credit card perspective, we don't disclose down to that granular level, as I mentioned before.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

What about CIBC?

[Diane Ferri]

We don't disclose an ROE.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

I expected as much.

I can tell you, when I worked at a major bank, it was 52%. It wasn't 10% for the overall bank. It was 52% that was a credit card return on equity internally, so this line that you're not making any money at a 1.6% credit card loss rate, according to the Canadian Bankers Association, relative to, say, 100 basis points generally for your lending, is a fantasy. That difference between all of you, between a 1.6% credit card loss and charging 21% interest on the credit card, is a monstrous profit decision, and it isn't a few bells and whistles on buying points from Air Canada's Aeroplan or Avion

I will move to TD.

Can you tell me about your regulatory failing in the U.S. on money laundering? Was that a result of the regulator or a result that you guys do the bare minimum in money laundering? You don't absolutely say, “I'm going to stop this no matter what.” Is that correct?

[Meg McKee]

I will say that money laundering is a serious global threat. Our U.S. operation did not maintain an adequate AML program to thwart some criminal activity. We've taken full responsibility for the failures.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Do you know for a certainty that this can't happen in Canada?