CIBC (NYSE:CM) recently announced it has identified and appointed Victor Dodig, 49, as CEO who will replace Gerald McCaughey, the current CEO, who is going into retirement. Dodig will step into power on September 15th, 2014 and will be based in Toronto. Although CIBC announced that it was seeking both internal and external for a replacement which may not have come until 2016 they decided to call on Dodig who was the head of CIBC's wealth-management group since 2011. Dodig climbed the CIBC ladder through the retail banking and sales division.
Focus On Expansion in Wealth Management
It truly does not come as a surprise that CIBC placed the head of their wealth-management group as their new leader. Most of CIBC's most recent strategic investments and transactions have come on the wealth management side of the business. It is important to note that CIBC has not done well in the company's previous ventures into the US mortgage markets which date back to 2007. In 2007, CIBC claimed one time write downs of $493 million due to their exposure tied to US mortgage markets. Other Canadian banks such as Toronto Dominion have expanded rapidly into the American retail and business market while others such as CIBC have retreated.
CIBC since consolidating back into Canada has started to poke back around for expansion opportunities on the back of strong earnings being generated by its Canadian retail and business banking units. In 2014, the company disclosed that it was interested in buying all of Seattle-based Russell Investments. Russell runs over $250 billion of assets. CIBC claimed at that time that their objectives are to expand business generated by wealth management targeting 15 percent of earnings to come from this side of the business.
Although CIBC may not close on the Russell opportunity it was successful in other transactions including the acquisition of Atlantic Trust Private Wealth Management from Invesco Ltd. Atlantic manages about $20 billion and 235 employees. In 2012, CIBC also made a strategic investment through the acquisition of a 41 percent stake in American Century Investments from JPMorgan Chase (NYSE:JPM). The transaction was valued at $848 million.
The fact is that CIBC acquired Atlantic which manages $20 billion but then stepped up its game by attempting to acquire Russell that manages $250 billion. These recent events demonstrate that CIBC has a serious appetite for expansion into the wealth management industry.
Sticking To The Canadian Retail and Business Banking Market
The company has reiterated that it is sticking with familiar grounds by focusing on profitable revenue growth within the Canadian retail and business markets. They have shifted to a strategy focused around their clients with the objective to enhance the client experience which should ultimately retain their existing client base. The second area of growth will come from wealth management, most likely through acquisition and the successful integration of their recently acquired divisions. CIBC's Canadian retail and business banking division offers clients across Canada with financial advice, products and services through a network of advisors and greater than 1,100 branches, as well as its ABMs, mobile sales force, telephone banking, online and mobile banking.
It must be noted that the Canadian banking industry has become hyper competitive as both Tier 1 and Tier 2 banks fight to gain new clients through all forms of marketing campaigns with regional focuses. A great example of CIBC's innovative marketing combined with a strong existing relationship with Canada's largest coffee chain demonstrates their marketing tactics. CIBC recently announced the availability of a CIBC Tim Hortons Double Double Visa Card program with the primary focus to acquire new clients. Tim Hortons (THI) faces stiff competition in the Greater Toronto Area but has eliminated competition outside of Toronto especially in blue collared cities. Tim Hortons has rolled out a nationwide marketing program to promote the new Visa card including mass marketing campaigns both in and out of their retail locations. Although this program will have very little material impact to CIBC shareholders, it simply demonstrates how the market has become hyper competitive and how CIBC is keeping pace with the industry trends.
Caribbean Skeletons Are Cleaned Out
In addition to CIBC's mistakes in the American mortgage market, they have also suffered significant blows with their ventures into the Caribbean banking markets. In 2014, CIBC recently announced that it wrote-down $420 million in its Caribbean operations. The company tied the losses to a slowing global economy which has had a negative impact on regional tourism and growth through the Caribbean. Dodig joins CIBC at a time when the company is expected to report additional one time blows such as those recently experienced in the Caribbean.
What Shareholders Should Take Away From
Gerald McCaughey assisted the company through some of the most difficult financial times and established a platform for the next stage of growth. It is very clear that CIBC brought in Dodig to take the company to the next level which will be driven by acquisition in the private wealth management arena. As mentioned, the Canadian retail and business banking markets have become fiercely competitive but is also generating healthy profits which is allowing CIBC to go whale hunting for companies such as Russell Investments.
It will not be an easy role for Dodig to fulfill, as CIBC is not the only financial institution with deep pockets that are eyeing wealth management. Other notable recent transactions in the space include Bank of Nova Scotia's (NYSE:BNS) acquisition of DundeeWealth with approximately $82 billion under management. Further, Macquarie Private Wealth was sold to Richardson GMP for a price of about $132 million. Macquarie was managing about $14 billion of assets.
Overall, it should be expected that Dodig drives strategic growth through acquisition and the successful integration and optimization of private wealth management firms in North America.
Disclosure: The author is long BNS, CM. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.