Why history hasn’t been kind to CIBC’s forays in the U.S.
Why history hasn’t been kind to CIBC’s forays in the U.S.
Tags: CIBC
EXTENDED COVERAGE
ANALYSIS: For years, Canadian Imperial Bank of Commerce (CM.TO) has been known as the Canadian bank with no real presence in the United States. It preferred it that way – and for good reason.
Under previous leadership, CIBC’s experience in the U.S. was plagued by setbacks; and its failures there set it on a conservative, stick-to-the-basics approach for more than a decade.
The acquisition of PrivateBancorp – a Chicago-based outfit that serves businesses and high-net-worth individuals – shows CIBC’s aversion to the U.S. marketplace is over.
In the late 1990s and early 2000s, a CIBC strategy to turbocharge profit by building a big-time investment bank in the U.S. delivered juicy returns for a while, but blew up in the aftermath of the Enron scandal of 2001. CIBC was one of Enron’s bankers, and spent years defending itself against allegations it had helped Enron commit accounting fraud. In 2005, it agreed to pay $2.4 billion – a sum greater than its full-year profit in 2004 – to settle an Enron-related class-action lawsuit. CIBC did not admit wrongdoing.
The bank also suffered a black eye for its involvement in the Global Crossing mess. Global Crossing was a Bermuda-based telecommunications company with ambitions to blanket the world in fibre optic cable – and was another client of CIBC World Markets. For several years, it was an important source of profit for the bank, as CIBC raised money for Global Crossing and owned a piece of the company. It all came to an ugly end in 2003 when Global Crossing sought bankruptcy protection. Once again, years of lawsuits and nasty publicity hung over CIBC.
“We stumbled where it counts in 2003,” said then-CEO John Hunkin to CIBC shareholders early in 2004. “And that is in the intangible and invaluable realms of trust and reputation.”
Gerry McCaughey had seen enough. When he took over as CEO of CIBC in the summer of 2005, he set about making big changes. A shift away from volatile, higher-risk investment banking – and the U.S. marketplace – that began out of necessity under Hunkin was accelerated. For most of McCaughey’s time as boss, CIBC worked relentlessly to invest in its Canadian retail banking business. By the time McCaughey left in the fall of 2014, Canadian retail banking was on track to deliver $2.5 billion in annual profit – about two thirds of all profit at the bank and almost triple the profit from its wholesale banking segment, where investment banking resides.
(The McCaughey era, however, was not free of controversy. His departure was tainted by a botched succession plan that saw he and former chief operating officer Richard Nesbitt paid a combined $25 million in the year and a half after they ceased working at the bank.)
Interestingly, a small acquisition made late in McCaughey’s tenure may have laid the groundwork for the PrivateBancorp acquisition that was announced on Wednesday. In April 2013, CIBC paid US$210 million for Atlantic Trust, a wealth management firm catering to high-net-worth individuals, foundations and endowments in 12 U.S. cities. It was light-years away in orientation from John Hunkin’s swashbuckling era. This was a bank that earned its keep from a steady flow of fees from well-heeled U.S. clients. Bankers like to use the phrase “high touch” to describe the service these clients get.
“Atlantic Trust provides CIBC with an attractive entry into the U.S. private wealth market,” said an ambitious CIBC senior executive named Victor Dodig at the time.
Dodig, of course, is now CEO of CIBC and very likely the executive who drove the hunt for a U.S. acquisition that would build on the Atlantic Trust platform. PrivateBancorp roughly doubles the Atlantic Trust branch footprint and its assets under management. And it allows CIBC to offer basic banking services to customers of Atlantic Trust.
Dodig hints broadly the deals aren’t over yet.
“We see this as a long-term strategic transaction that creates a platform for growth across North America,” he told shareholders on Wednesday.
More than a decade after exiting the U.S. with its reputation in tatters, CIBC is back.
Under previous leadership, CIBC’s experience in the U.S. was plagued by setbacks; and its failures there set it on a conservative, stick-to-the-basics approach for more than a decade.
The acquisition of PrivateBancorp – a Chicago-based outfit that serves businesses and high-net-worth individuals – shows CIBC’s aversion to the U.S. marketplace is over.
In the late 1990s and early 2000s, a CIBC strategy to turbocharge profit by building a big-time investment bank in the U.S. delivered juicy returns for a while, but blew up in the aftermath of the Enron scandal of 2001. CIBC was one of Enron’s bankers, and spent years defending itself against allegations it had helped Enron commit accounting fraud. In 2005, it agreed to pay $2.4 billion – a sum greater than its full-year profit in 2004 – to settle an Enron-related class-action lawsuit. CIBC did not admit wrongdoing.
The bank also suffered a black eye for its involvement in the Global Crossing mess. Global Crossing was a Bermuda-based telecommunications company with ambitions to blanket the world in fibre optic cable – and was another client of CIBC World Markets. For several years, it was an important source of profit for the bank, as CIBC raised money for Global Crossing and owned a piece of the company. It all came to an ugly end in 2003 when Global Crossing sought bankruptcy protection. Once again, years of lawsuits and nasty publicity hung over CIBC.
“We stumbled where it counts in 2003,” said then-CEO John Hunkin to CIBC shareholders early in 2004. “And that is in the intangible and invaluable realms of trust and reputation.”
Gerry McCaughey had seen enough. When he took over as CEO of CIBC in the summer of 2005, he set about making big changes. A shift away from volatile, higher-risk investment banking – and the U.S. marketplace – that began out of necessity under Hunkin was accelerated. For most of McCaughey’s time as boss, CIBC worked relentlessly to invest in its Canadian retail banking business. By the time McCaughey left in the fall of 2014, Canadian retail banking was on track to deliver $2.5 billion in annual profit – about two thirds of all profit at the bank and almost triple the profit from its wholesale banking segment, where investment banking resides.
(The McCaughey era, however, was not free of controversy. His departure was tainted by a botched succession plan that saw he and former chief operating officer Richard Nesbitt paid a combined $25 million in the year and a half after they ceased working at the bank.)
Interestingly, a small acquisition made late in McCaughey’s tenure may have laid the groundwork for the PrivateBancorp acquisition that was announced on Wednesday. In April 2013, CIBC paid US$210 million for Atlantic Trust, a wealth management firm catering to high-net-worth individuals, foundations and endowments in 12 U.S. cities. It was light-years away in orientation from John Hunkin’s swashbuckling era. This was a bank that earned its keep from a steady flow of fees from well-heeled U.S. clients. Bankers like to use the phrase “high touch” to describe the service these clients get.
“Atlantic Trust provides CIBC with an attractive entry into the U.S. private wealth market,” said an ambitious CIBC senior executive named Victor Dodig at the time.
Dodig, of course, is now CEO of CIBC and very likely the executive who drove the hunt for a U.S. acquisition that would build on the Atlantic Trust platform. PrivateBancorp roughly doubles the Atlantic Trust branch footprint and its assets under management. And it allows CIBC to offer basic banking services to customers of Atlantic Trust.
Dodig hints broadly the deals aren’t over yet.
“We see this as a long-term strategic transaction that creates a platform for growth across North America,” he told shareholders on Wednesday.
More than a decade after exiting the U.S. with its reputation in tatters, CIBC is back.
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