CIBC buoys wealth strategy with McLean Budden buy

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Canadian Imperial Bank of Commerce is expanding deeper into wealth management with the acquisition of the private banking assets of McLean Budden Ltd.

The deal, for an undisclosed price, is the second significant wealth-management acquisition CIBC has done in the past year. Last summer, the bank purchased a 41-per-cent equity interest in U.S. asset manager American Century Investments, for $848-million (U.S.).

While the purchase of McLean Budden's private wealth business is considerably smaller – the price tag attached to the deal is not material to the balance sheet, the bank said – the assets are part of a bigger strategic push by CIBC. The business, a unit of Sun Life Financial that operates under the trade name MFS McLean Budden, caters to high-net-worth clients, a key focus for the bank. It includes $1.4-billion (Canadian) in assets under management.

"We were invited to take a look at the business and once we dug in with our due diligence team, we got excited about this," Gary Whitfield, managing director and head of private wealth management in Canada for CIBC, said in an interview. In addition to catering to wealthy clients, such as families and foundations, the business also has relationships "with some of the top investment consultants in Canada, which is an area that we haven't really focused on in the past," Mr. Whitfield said.

CIBC chief executive officer Gerry McCaughy said in a recent interview that the bank has targeted wealth management as a key area for growth. Mr. McCaughey has spent the past several years repositioning the strategy of Canada's fifth-largest bank, moving it away from riskier assets such as structured debt and investment banking, and toward lower-risk areas such as fee-based businesses. Wealth management is considered one of those areas, since it makes money by charging clients fees, but doesn't tie up the bank's own capital.

Several banks, including Royal Bank of Canada and Bank of Montreal, have been trying to expand their wealth management businesses in recent years through acquisitions. "If you look at what's happened in the industry over the last few years, there have been a number of deals that have been completed," Mr. Whitfield said.

The deal, which requires regulatory approval, is expected to close by the end of October. Mr. Whitfield said the bank's investment counselling business has been growing at a rate of 20 per cent annually over the past two years, highlighting the attractiveness of wealth-management assets for CIBC.

That said, the deal is relatively small compared with the bank's overall balance sheet. The $1.4-billion in assets under management compare with about $12.8-billion in private wealth management assets already under management at CIBC, as of last year, said analyst Peter Routledge at National Bank Financial.

If the deal closes, it could add 1 cent of share profit to the bottom line, Mr. Routledge said, noting that it fits with CIBC's objective to boost wealth management earnings to 15 per cent, from less than 10 per cent today. "This deal won't move them materially closer to that objective over all, but it does reinforce CIBC's messaging on its key objectives," Mr. Routledge said.