A sign outside the CIBC head office at King St. West and Bay St. in Toronto on April 17, 2014.Fred Lum/The Globe and Mail
Canadian Imperial Bank of Commerce's troubled Caribbean arm is finally turning the corner following an extensive restructuring, but the appointment of a new chief executive officer is sending mixed signals about the bank's plans for the unit.
A few weeks ago, the lender's head of corporate banking Gary Brown was quietly appointed the next CEO of CIBC FirstCaribbean, based in Barbados. Mr. Brown will take over from departing head Rik Parkhill on January 1.
The bank Mr. Parkhill inherited in 2011 was in rough shape, with expenses that grew roughly 5 to 7 per cent annually and a sprawling loan book. The lender was heavily exposed to countries such as the Bahamas and Barbados, which are now in dire financial straits after tourist dollars dried up following the Great Recession.
It took some time for Mr. Parkhill and executives in Toronto to grasp the severity of the situation, but over the past two years, CIBC has unleashed a restructuring plan that involved cutting the work force by roughly 15 per cent and consolidating back offices. CIBC also incurred a $420-million goodwill writedown in May, 2014, to reflect its rough Caribbean loan book.
More than half of the bank's total gross impaired loans reside in the region, which contributes only 3 per cent of its profit. The balance sheets of Royal Bank of Canada and Bank of Nova Scotia, the other two Canadian lenders with extensive Caribbean arms, exhibit similar exposures. Like CIBC, both financial institutions have revamped their Caribbean arms in the past five years.
The question now is whether Mr. Brown will continue CIBC's restructuring plan, which helped deliver a $52-million (U.S.) profit in the first six months of the current fiscal year, or whether he will focus on selling the Caribbean bank.
A sale has been widely predicted, but until recently, there haven't been any willing buyers for Caribbean banks. Other lenders in the region, including domestic Caribbean financial institutions such as Republic Bank, have been focused on cleaning up their own loan books. Private equity players have shown interest, but nothing has materialized.
Mr. Brown has a history of fixing problems for CIBC, particularly in the United States. He oversaw the sale of some U.S. capital markets businesses to Oppenheimer in 2007 and cleaned up the bank's structured credit portfolio during the financial crisis. Sources say Mr. Brown is also trusted by chief risk officer Laura Dottori-Attanasio, who has not shied away from the large size of the impaired loan portfolio in the Caribbean on quarterly conference calls.
CIBC could not be reached for comment.
Mr. Brown's appointment goes against the trend for Canadian banks appointing leaders in the Caribbean. It appeared CIBC would follow RBC and Scotiabank in appointing a local to head up its unit in the region, and at one FirstCaribbean townhall, Mr. Parkhill went so far as to say the bank's next leader would likely be from the Caribbean.
But much has changed since then, including the naming of a new CIBC CEO. Victor Dodig took over the entire bank in September, 2014, and his new strategy involves hunkering down and running a small, sturdy lender with a regional focus. Whether the Caribbean fits into his definition of "regional" is unclear.
The Caribbean's economic recovery remains shaky. Although tourist dollars are expected to pick up as the U.S. economy gains steam, there are still warning signs. The developer of the enormous $3.5-billion (U.S.) Baha Mar resort in the Bahamas filed for bankruptcy in the United States last week, and Puerto Rico is now in a financial crisis, driven by frenetic government borrowing, impacting Bank of Nova Scotia, which has a sizable operation in the commonwealth.
Tim Kiladze