Richard Nesbitt
One of Bay Street's more polarizing executives is leaving the world of finance, as Richard Nesbitt steps down as the No. 2 executive at Canadian Imperial Bank of Commerce.
Mr. Nesbitt's next role hasn't been publicly announced, but it's not expected to be an executive position at another big company. After a decade in which he ran the corporate owner of the Toronto Stock Exchange, and headed up the securities firm owned by Canadian Imperial Bank of Commerce, as well as overseeing strategy and operations for the bank as a whole, the intense Mr. Nesbitt is likely to dial the pace back a bit.
In those 10 years, he made strong impressions on the businesses he ran, in every sense of the word. He left them making more money, and with revamped strategic directions. He also left bruised egos.
Many who worked for Mr. Nesbitt during his career speak of his high intellectual capability, intense drive and business acumen. Others grumble that he is both demanding of and destabilizing for subordinates, always looking for costs to cut and ways to get more out of employees. There is truth in both observations.
In some respects, Mr. Nesbitt put himself in the line of fire, working in top roles at companies about which others on the Street loved to gossip and complain.
He ran the Toronto Stock Exchange at the time when it held a virtual monopoly – the Bay Street equivalent of running a telephone company. Everyone had to use it, and everyone loved to complain about it. The usual litany of gripes was that it was too slow, too costly and made too much money off the backs of clients.
When Mr. Nesbitt came to CIBC to run the securities unit, the place was losing vast amounts of money. The culture was in upheaval, and was about to be shaken up even more as the bank, under chief executive officer Gerry McCaughey, sought to retreat from risk. Mr. Nesbitt had worked there before, but had left. He was an outsider, in many respects, and many in CIBC's remaining old guard did not take to him.
Mr. Nesbitt will acknowledge that he can keep people on edge. In fact, it's part of a management philosophy. As he told an interviewer when he was head of the TSX, his style is to be very candid, which can be perceived as abrupt. If that makes some in his organization nervous, so be it.
"A little tension is good sometimes," he said at the time. It's a strategy he carries to this day, liking to keep people around him on edge – and the numbers suggest there is something to it.
Mr. Nesbitt was plucked out of what is now TMX Group Ltd. in early 2008 by Mr. McCaughey, a long-time friend.
Mr. McCaughey had been chief executive officer of CIBC since 2005, and with the financial crisis under way, the bank was in big trouble because of problems in its securities business. No other Canadian bank was hit nearly as hard by exposure to bad U.S. mortgages and other toxic instruments.
When Mr. Nesbitt took over as head of CIBC World Markets, the securities division was in the midst of losing $4.2-billion for the fiscal year as a result of bad decisions on structured credit investments that blew up when the credit crisis hit.
In 2009, Mr. Nesbitt's first full year on the job, the loss narrowed to $472-million. By the end of the following year, the firm was making money again. Profit has climbed every year since. This year, the firm is on track to earn close to $1-billion.
That's still smaller than rivals. But CIBC World Markets is winning on one key measure – return on equity (ROE). That's the profit generated for each dollar invested in the business. So far this year, CIBC is running at an ROE of 43 per cent. That's about double the average of the other four big banks.
Directly comparing the banks' return on equity is hard because banks lump different things into divisional reporting, but CIBC is still way ahead of the pack. It's been at the top of the group for the past couple of years, so it's no fluke.
CIBC's is also one of the leanest securities businesses, running at a lower expense ratio (costs as a percentage of revenue) than all the other banks, save Bank of Nova Scotia's.
Yet Mr. Nesbitt's legacy is more than just cost-cutting. In his wider role of operations at the bank, he gets credit internally for pushing CIBC to spend more on technology.
At TMX, he took the company's strategy in much broader directions than before. From an owner of stock exchanges, he transformed it into a company that ran markets and clearinghouses for multiple asset classes beyond equities.
Mr. Nesbitt is best known for his purchase of the derivatives-focused Montreal Exchange, but he also bought a bond index company that has since become a leg for growth at TMX, as well as a bond broker and an investor relations firm. In his four-year tenure, annual revenue rose to $424-million in his last year, from $295.6-million when he started. Net income in the same period climbed to $149-million from $98-million.
If truth in finance comes from numbers, the enduring story of Mr. Nesbitt will be of a man who could get them going in the right direction, even if not everybody liked how he made it happen.