Canadian Imperial Bank of Commerce CM-T chief executive Victor Dodig says Ottawa’s affordable housing proposals in the upcoming federal budget will not solve the country’s real estate market issues in the near term.
In an interview after CIBC’s annual shareholder meeting Thursday, Mr. Dodig said his expectations for the budget include proposals that will boost housing development. He also warned that taxes on banks introduced in previous budgets threaten to drag on profits and investment in the industry.
Prime Minister Justin Trudeau said Wednesday that the federal government will add $15-billion to an existing low-cost loan program to jumpstart rental apartment construction. On Tuesday, the federal government said it is launching a multibillion-dollar fund to pay for infrastructure needed to build housing.
“I would characterize it as an incentive-based infrastructure system to advance the development of housing,” Mr. Dodig said. “Some of that’s going to take longer. It’s going to require much more co-ordination and co-operation that may not take the steam off in the very short term.”
He said a more immediate solution could include incentivizing homeowners to create rental units in existing homes.
The government has also taken a few swings at the banking sector in recent budgets.
In the past two years, Ottawa implemented three new taxes – which caught the banks off guard – aimed at extracting billions of dollars from banks and insurers. The sector publicly called out the government for targeting financial institutions and ignoring warnings that the taxes would dampen lending and further stunt slowing profit growth.
Mr. Dodig said the suddenly heavier tax environment threatens to deter investment in Canada’s banking sector.
“One of the things that I have heard from investors, particularly outside of Canada, is, ‘Are we entering a phase where we’re going to be surprised by government tax policy?’ Because investors want certainty and predictability,” Mr. Dodig said. “The most important thing our government can do is provide that certainty and predictability by not having surprises like that.”
Lenders have been pinched as waning demand for commercial real estate – particularly in office spaces, as employees continue to work in hybrid settings – weighed on valuations while higher borrowing costs increased the risk of loan defaults on these properties.
CIBC has been lowering its exposure to office lending – a move Mr. Dodig said is a long-term strategy, as it shifts resources to businesses where the bank believes it can grow.
The bank has had to set aside more provisions for credit losses – money that lenders reserve for loans that could default – for office loans, eating into its profit margins.
“We are going to – as we tilt our balance sheet somewhat away from real estate, and it’s still a big asset class on our balance sheet – invest in the innovation economy, invest in a more diverse series of economic sectors and industrial sectors to grow with our clients,” Mr. Dodig said.
CIBC is expanding its U.S. operations into fast-growing cities, including Palm Beach, Fla., and San Francisco, particularly in wealth management, to attract high-net-worth clients. Mr. Dodig expects to build these businesses organically but would consider some small acquisitions to add to its wealth business.
The bank recently did a leadership shakeup, positioning certain top executives for development and possible promotion to the CEO chair. While CIBC said at its annual meeting that the share of women in executive roles increased to 39 per cent in 2023, nearing its goal of at least 40 per cent by the end of 2024, there are no women on the senior executive team who could make a run for the top job.
Despite women making up more than 50 per cent of employees in the industry, it is unlikely that the next group of the country’s most influential Bay Street leaders will include the first woman to lead one of the country’s biggest banks.
“There may be in time, and I don’t think you should ever look at a moment in time to say, this feels like the same old trajectory,” Mr. Dodig said. “We have senior women throughout our bank, not necessarily in the C-suite, SBU [strategic business unit] kind of leadership roles, but we’ll focus on that as we go forward as well.”
Shareholders voted Thursday against proposals calling on the bank to disclose the impacts of divestment from the Canadian oil and gas sector, combat tax havens, hold an annual advisory vote on its environmental objectives and publicize its CEO compensation-to-median-employee-pay ratio.
One proposal passed, however, asking CIBC to hold its annual meetings in person. The bank recommended that shareholders reject the proposal, but it passed with 53 per cent voting in favour.
“Our current attention is to maintain a hybrid format while considering shareholder perspectives and developments,” CIBC board chair Katharine Stevenson said.
Stefanie Marotta