Canadian Imperial Bank of Commerce is planning layoffs in the coming months as it kicks off a new wave of cost-cutting in an effort to catch up to competitors on a key measure of efficiency.
Chief executive Victor Dodig told staff in an internal memo that CIBC needs to “continue to challenge ourselves to be a more efficient bank,” which means “keeping a careful eye on costs.”
“As a result, some team members will be leaving our bank in the coming months," Mr. Dodig wrote, although he did not say how many.
The previous significant cost-cutting drive at Canada’s fifth-largest bank began in 2015 and 2016, when CIBC took restructuring charges of $296-million and $134-million, respectively. Ever since then, executives at the bank have made significant progress in improving its efficiency ratio – which measures expenses relative to revenue. At the time, the bank set a goal to improve its adjusted efficiency ratio to 55 per cent from 58 per cent by the end of 2019, and narrowly missed that target, closing the year at 55.5 per cent.
But CIBC still lags most of its peers in that category, which investors watch closely.
“While we have made steady progress since we started this journey, we have work to do to lower this ratio further, as it’s part of what makes us a strong competitor in the market and a good long-term investment for our shareholders,” Mr. Dodig told CIBC staff.
Tom Wallis, a spokesperson for the bank, declined to comment.
As CIBC plays catch-up, its competitors are also slashing costs. Bank of Montreal recently announced it will cut about 5 per cent of its staff, and took a $484-million pretax restructuring charge. Toronto-Dominion Bank and Royal Bank of Canada both took smaller restructuring charges at the end of 2019. And all of Canada’s banks have invested in automation, stripped costs from the back office and begun shrinking their real estate footprints to try to rein in spending.
“All banks continue to emphasize efficiency, though some more than others,” Darko Mihelic, an analyst at RBC Dominion Securities Inc., said in a January research note.
Thursday’s announcement about layoffs makes it more likely CIBC will take its own restructuring charge in the coming quarters. In December, on a conference call with analysts, Mr. Dodig would not rule out such a charge. “We continue to review all our options, and that could potentially require a charge down the line in order to accelerate our progress,” he said.
The bank had 45,157 full-time equivalent employees as of Oct. 31, according to company filings.
CIBC is looking to turn a corner in 2020, after it reported disappointing earnings in the last fiscal year. Profit fell 6 per cent in the fiscal fourth quarter, compared with a year earlier, due largely to a spike in provisions for loan losses driven by a projected $52-million loss on a single client that the bank has said was “fraud-related."
“Last year, we put a bit of a pause on earnings growth, which wasn’t something we were proud of," Mr. Dodig said at a conference in January.
CIBC has projected that profit will rise in 2020 by a “low-single-digit” percentage. And Mr. Dodig said at the January conference that CIBC is unlikely to reach a previously announced target to further reduce its efficiency ratio to 52 per cent by 2022. “I think the revenue environment makes it difficult to get there within the next two years," he said at the time, and called a range of 53.5 per cent to 54 per cent “more realistic.”
In his note to staff on Thursday, Mr. Dodig called the layoffs “difficult decisions,” but said they are necessary. “We are not taking these decisions lightly as they involve colleagues who have made valuable contributions to our bank," Mr. Dodig said.
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