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CEO Victor Dodig says he wanted to be clear about his objectives in expanding CIBC’s U.S. business without giving away the target.Glenn Lowson/The Globe and Mail

Ever since Victor Dodig took over as chief executive officer at Canadian Imperial Bank of Commerce in 2014, his ambitious plans to rebuild the bank have sounded warm and fuzzy.

CIBC will become nimble, tech-savvy and responsive, he promised.

It will improve its customer-service scores, vaulting above rival banks, he said. And it will expand its business banking capabilities, putting the "commerce" back into CIBC.

Sounds good, observers said. Now show me the results.

This week, Mr. Dodig responded by announcing the biggest deal in CIBC's history: The $4.9-billion acquisition of Chicago-based PrivateBancorp Inc., a private and commercial bank with nearly $18-billion (U.S.) in assets in 12 states, could remake CIBC into a bigger player on the North American stage.

When the deal closes early next year, CIBC will gain a far deeper reach into the United States, currently limited to private wealth management through Atlantic Trust.

It will also overturn the bank's profile as a Canadian regional player, giving it a new avenue for growth amid lacklustre prospects at home, where an overheated housing market, high consumer debt loads and volatile commodity prices have whacked the economic outlook.

But the deal also raises questions about the price CIBC paid, its strategy for integrating the U.S. bank and just how Mr. Dodig will prod the U.S. market into delivering 25 per cent of CIBC's profit within five to seven years – a huge leap from just 5 per cent today.

"I'd say this is strategically foundational for us," Mr. Dodig said in an interview after whirlwind meetings in New York and Chicago.

The origins of the move into the United States date back to meetings Mr. Dodig had with hundreds of CIBC commercial banking customers – business owners and entrepreneurs – who told him that they were expanding into the United States and needed banking services there. Snowbirds, who used CIBC's private banking services, were telling him the same thing.

"We heard this and said: "Wow, this is so obvious. Now let's look for the right business,'" Mr. Dodig said.

In some ways, CIBC was lagging //behind// its peers in identifying opportunities in the United States. Toronto-Dominion Bank has built a formidable retail-banking operation on the eastern seaboard over the past decade. Bank of Montreal has developed extensive banking capabilities through BMO Harris Bank in the U.S. Midwest, adding Milwaukee-based Marshall & Ilsley Corp. in 2012. And Royal Bank of Canada completed its $5-billion deal for Los Angeles-based City National Bank late last year.

Undeterred, CIBC assembled a short list of about 10 to 15 U.S. banks that offered asset management, wealth management, private banking and commercial banking capabilities. The right size was also important: CIBC initially set out to acquire a bank for less than $2-billion (Canadian), and then raised the potential price up to $4-billion.

Mr. Dodig made his objectives clear on numerous occasions, without showing his hand: "I've tried to be as articulate as possible without being so articulate that people started identifying who the targets are," he said.

It worked. The announcement on Wednesday that CIBC had agreed to acquire PrivateBancorp came as a surprise – as did the timing, right after market volatility related to Britain's decision to leave to the European Union.

The price tag, too, came as a shock to some analysts, who argued that CIBC overpaid for PrivateBancorp relative to its book value and annual profit.

Mr. Dodig disagrees. He argued that the price was fair given that the Chicago-based bank will start contributing to CIBC's profits in the third year following the close of the deal. As well, he didn't want a fixer-upper, preferring a bank that is generating strong results already.

PrivateBancorp has increased its profit by an average of more than 20 per cent a year over the past three years, with loan growth exceeding the industry average.

Initially, PrivateBancorp's CEO, Larry Richman, made it clear that his bank wasn't for sale. But over subsequent meetings, Mr. Dodig said, "I talked to him about what we were trying to achieve and he started to tell me about what they were trying to achieve – and we started talking about how we could achieve that better together."

CIBC contributes a strong credit rating and big balance sheet that will help PrivateBancorp build its deposits and loans in major U.S. centres. In return, CIBC gets a strong U.S. franchise that will allow it to serve its Canadian customers.

The combination, as it looks on paper, will immediately raise the share of CIBC's U.S. profit to 10 per cent, double what it is today. But Mr. Dodig expects that share to keep rising. He believes that the U.S. market will generate 25 per cent of CIBC's profit by 2024 – an astounding target given that CIBC today is perceived as a domestic bank.

Mr. Dodig looks at it this way: CIBC is what he calls a "one-armed bank" in the United States – unable to take deposits and serve its Canadian customers there. The acquisition of PrivateBancorp will immediately let them serve their existing customers.

"The question is: How far down the road will that get us to the 25-per-cent mark?" he said. "Everyone is asking me: What about acquisitions? And my only answer to that is: The focus for us right now is to make this right."

In other words, execution – or how CIBC integrates PrivateBancorp following the close of the deal in the first quarter of 2017 – is now critically important to the success of the deal.

Mr. Dodig believes that maintaining PrivateBancorp's current leadership is the key to success. While current CIBC executives will continue to head the parent bank's capital markets, wealth management and retail and business banking units, Mr. Richman will expand his responsibilities: He becomes head of CIBC's U.S. region and joins the executive committee.

"It is clear to Larry and his team that we want them to run the U.S. region," Mr. Dodig said. "We want them to work with all the team members we have down there already and lead our efforts into the U.S. There is no better asset and benefit than to have a trusted partner on the ground. They know the local market really well."

He acknowledges that there are still many details to work out. CIBC has to figure out how it will deliver U.S. banking services to its Canadian clients, how it will integrate the Atlantic Trust platform into its U.S. regional operations and what investments PrivateBancorp has to make to expand its footprint.

But he insists that CIBC will stay focused on specific business and professional customers in 15 to 20 major centres over time, lending money to them, taking their deposits and managing their wealth.

"It's not thousands of branches. It's not Wall Street," Mr. Dodig said. "It wouldn't be laden with a lack of focus, which is the biggest problem in banking today."

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

SymbolName% changeLast
BMO-N
Bank of Montreal
+0.07%93.92
BMO-T
Bank of Montreal
+0.05%127.17
CM-N
Canadian Imperial Bank of Commerce
+0.73%49.6
CM-T
Canadian Imperial Bank of Commerce
+0.72%67.17
RY-N
Royal Bank of Canada
-0.07%99.27
RY-T
Royal Bank of Canada
-0.22%134.34
TD-N
Toronto Dominion Bank
-1.33%59.26
TD-T
Toronto-Dominion Bank
-1.4%80.23

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