CIBC Square in downtown Toronto on Sept 29, 2021.Fred Lum/the Globe and Mail
Canadian Imperial Bank of Commerce CM-T raised its profit target in a show of confidence as chief executive officer Victor Dodig made a pitch to investors on Thursday that he has built a different, more reliable bank.
CIBC boosted its target growth rate for adjusted earnings a share to 7 to 10 per cent annually through 2025, from 5 to 10 per cent, and predicted similar levels of revenue growth at an investor presentation held at its new Toronto headquarters. The bank also increased its target for adjusted return-on-equity to 16 per cent from 15 per cent.
Mr. Dodig framed CIBC as “a bank that’s on the rise” on Thursday, as he has repeatedly of late. On his watch, CIBC has invested in its retail banking division with an aim to make it more stable and consumer-friendly, and carved out a niche in the U.S. market, focused on commercial banking and wealth management. It has merged the commercial banking and wealth management units to make sure its business lines refer clients to each other more often, and has branched out into new ventures, ramping up lending to early-stage tech companies and offering no-fee digital banking services.
Mr. Dodig often talks about “the bank that we are today,” pointing to rising client and employee engagement scores and drawing a contrast with a reputation for missteps and uneven performance that has dogged CIBC in the past. Now, faced with an uncertain economic outlook shaped by high inflation and rapidly rising interest rates, Mr. Dodig told investors CIBC will adjust as needed, but that “part of our strategy is to stay consistent, and not volatile.”
“While I recognize the economic volatility that the entire globe is going through because of inflation and interest rates, our strategy is not cyclical, our client focus is not cyclical,” he said in an interview.
CIBC bankers hosted investors at CIBC Square, the bank’s new twin-towered headquarters just south of the financial district in Toronto. It is one of the most visible symbols of the changes at CIBC, which also include a rebrand with a new logo. Those were significant investments – Mr. Dodig hinted Thursday that the rebrand cost nearly $200-million. When challenged Thursday by TD Securities Inc. analyst Mario Mendonca on how he justifies that spending, Mr. Dodig said he feels “very, very good” about the return.
“If you get a better retention of your talent, if you get better retention and more business from clients, you [only] need to have very small improvements to pay off the investments that we’ve made,” he said.
One area where CIBC has improved its retention rates is in its sizeable book of mortgage clients, 92 per cent of whom now renew with CIBC when their terms expire. The bank has also made an array of changes to systems and processes to make it easier for clients to open accounts, and for employees to draw them into deeper relationships with other products and services. CIBC’s recent acquisition of retail giant Costco’s credit card portfolio also brings an influx of new customers – 75 per cent of the two million cardholders didn’t bank with CIBC before.
The U.S. banking arm, CIBC Bank USA, is predicted to be the division that grows the fastest, with a target to increase revenue by 10 to 13 per cent annually through 2025. The division now generates 21 per cent of CIBC’s profit, up from just 2 per cent in 2016, and Mr. Dodig hopes it will contribute 25 per cent in three years.
A good deal of that growth has come from $6-billion of acquisitions, mostly notably of Chicago-based PrivateBancorp Inc. But looking ahead, CIBC expects to keep the U.S. unit tightly focused on what it calls the “private economy” – banking for private businesses and high-net-worth families – and has only signalled interest in making smaller deals to add to its U.S. wealth management business.
The bank also put a spotlight on its newer businesses. One is its innovation banking unit, which serves early- to mid-stage tech companies and aims to triple its profit before taxes by 2025, from $59-million last year. Another is the direct financial services (DFS) division, which includes digital bank Simplii Financial, do-it-yourself investing platform Investor’s Edge and a group that offers digital global money transfer, foreign currency conversion and international student payments. The bank thinks DFS revenues could grow by 15 per cent or more annually.
Yet those rapidly growing units, as well as the bank’s core mortgage business, may be facing a period of slower growth as rising borrowing costs sap the momentum from a strong run for real estate and technology. And that could make CIBC’s new, loftier profit target harder to hit.
“If there’s a slowdown, it may slow down some of the growth in certain product categories,” Mr. Dodig said. “But again we’re banking relationships, we’re not banking products.”
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