Just one year into a new contract, Canadian Imperial Bank of Commerce chief executive officer Gerald McCaughey surprised Bay Street by announcing his plans to retire, sparking a tsunami of speculation about the timing of the news and who will replace him.
Mr. McCaughey said he could stay in the role for up to two more years and did not immediately name a successor – both of which are rare moves for a Canadian bank chief.
The CEOs of Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia have all announced retirement plans during the past year and a half, but each immediately named a successor and kept the transition period to 18 months or less.
The last time CIBC announced a CEO transition, in 2005, Mr. McCaughey was waiting in the wings, clearly labelled as the next boss. The situation this time is far less clear.
Last year, the bank named Richard Nesbitt as chief operating officer – the same title Mr. McCaughey held before he took over – but stressed the promotion was not designed to signal he was next in line for the top job. Even if he had been a candidate, Mr. Nesbitt announced his own retirement just last month, taking him out of the running.
Bank sources say possible candidates to replace Mr. McCaughey include David Williamson, head of Canadian retail and commercial banking, as well as wealth management head Victor Dodig. However, an outsider could be brought in, some speculated.
"I will not share at this moment any view of the board," CIBC chairman Charles Sirois said, adding that both types of candidates are possibilities. "We believe that we have strong talent internally that has been developed" but the board is also "scouting the outside market on a regular basis."
There are multiple theories as to what led to the timing of Mr. McCaughey's announcement. He has already served as CEO for nine years, meaning he would surpass the standard 10-year tenure for a bank chief if he stays in the job until 2016, so stepping down at this point seems natural. But just last May, he had signed a four-year contract, highlighting his commitment to the role.
A senior executive at the bank said Mr. McCaughey's announcement signals to the senior ranks that the board knows it can't delay developing a succession plan even in the absence of a clear front-runner.
Mr. Sirois said the board believed it was best for shareholders to have as much information as possible, even if it created some uncertainty. "We think it's good governance that when Gerry's decision is done and discussed by the board, we have to put it public," he said in an interview. "We think full disclosure is the best course of action."
The question mark over a successor isn't bothering investors – at least not yet. Following the announcement, CIBC's stock closed slightly higher.
"You don't normally see a CEO give two years warning," said Murray Leith, director of investment research at money manager Odlum Brown, "but it doesn't really change my thinking on the stock."
"The bigger deal for CIBC is that they've done a good job de-risking the business. The bank's performing well and is very profitable," he said.
Early in his tenure as CEO, Mr. McCaughey spent a considerable amount of time restructuring the bank. Just before he took charge, CIBC paid $2.4-billion (U.S) to settle a lawsuit arising out of the Enron disaster, and shortly after he took over the bank lost billions because of its exposures to U.S. subprime mortgages.
After surviving those shocks Mr. McCaughey focused on plain vanilla retail and commercial banking. In recent years he has re-engineered key parts of this business by ending the bank's relationship with mortgage brokers and revamping its Aventura travel rewards card, while also selling off half its Aeroplan credit card portfolio.
Such decisions carried weight because Canadian retail and commercial banking accounts for 70 per cent of the bank's bottom line. The Aeroplan account itself used to amount to 11 per cent of the bank's profits.
Until his successor is named, Mr. McCaughey stressed that very little changes in the bank's overall strategy. The focus for the moment is to expand in wealth management until the business brings in 15 per cent of the bank's earnings. Last quarter it accounted for 12 per cent of profits.
Mr. Leith hopes to see more of these growth objectives under the next chief because CIBC "hasn't fully developed a strategy to deploy its free cash flow."