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File photo of the CIBC building at King and Bay St., Toronto.Fernando Morales/The Globe and Mail

Canadian Imperial Bank of Commerce said it will cut $600-million in costs and drive profit growth to 10 per cent a year by 2018, as it shifts resources to technology-driven banking.

Under chief executive officer Victor Dodig, CIBC has been trying to position itself as a nimble regional player that stresses innovation, simplified banking and a stronger commitment to serving its clients.

But its new targets, delivered to key institutional shareholders and analysts at an investor day on Wednesday, are particularly bold.

"We have a plan to compete effectively against our incumbent banks here in our own marketplaces where we compete," Mr. Dodig said in his opening remarks. "We also have a plan to compete with the disruptors that will play a role in the financial ecosystem."

A number of Canadian banks have been taking a close look at their expenses amid a challenging backdrop of uneven economic activity, tapped-out consumers, a depressed energy sector and rising competition from new players, all of which have weighed on share prices over the past year.

Last week, National Bank of Canada said it would eliminate a few hundred positions and raise $300-million in a share offering designed to offset shifting consumer preferences and falling capital levels.

CIBC's goal is different, though. It plans to continue raising its quarterly dividend until the payout approaches 50 per cent of its profit; and, far from issuing new shares, it is contemplating buybacks.

However, CIBC is also adjusting to a rapidly changing business environment as consumers are moving away from traditional banking channels.

"It's recognizing that the world around us is changing, and that we need to change from within to be able to compete," Mr. Dodig said in an interview. "The corporate world is strewn with companies that have failed because they didn't adapt to the new environment."

The bank said that some of the cost savings would be derived from increasing the profile of its digital banking, consolidating its data warehouses from 120 to one and reducing the number of key managers at each bank branch to just one from two. At the end of the third quarter, CIBC had 1,128 branches across Canada.

"The primary purpose of this program is to make things easier. It's the customer experience. The byproduct of that will be the numbers we've been talking about, the $600-million [in cost reductions]," said Mike Capatides, CIBC's chief administrative officer.

The bank said the savings will be reinvested in other areas and help to increase its annual earnings growth rate, on a per-share basis, from an average of about 4 per cent in recent years to as much as 10 per cent by 2018. This suggests that the bank can deliver better growth than the underlying domestic economy.

However, the bank warned that the transformations will result in occasional restructuring charges, including a charge of $175-million to $200-million in the fourth quarter.

CIBC also set a goal of becoming the No. 1 retail and business bank in terms of customer satisfaction, with the intention of bumping Toronto-Dominion Bank from the top spot in the J.D. Power satisfaction survey, a position it has held for the past 10 years.

CIBC currently sits in fourth position, but it has been closing the gap with an improved rating this year.

"It's about taking all the Old Economy costs out," Mr. Dodig said in the interview. "We're changing our cost base to be much more dynamic, much more digital and much more modern.

"Modern convenient banking is no longer about the branch hours. It's about banking when you want, how you want and on your terms."

Financial technology startups, known as fintechs, are playing a role.

David Williamson, CIBC's group head of retail and business banking, said that the bank had partnered with two unnamed firms to develop new approaches to areas in which traditional banks are at risk of encroachment from upstarts.

One fintech will allow CIBC to offer free cross-border payments, as the bank taps into an estimated $30-billion made in remittances to residents of other countries each year and attracts new Canadians as clients.

The other will be a branded online small-business lender, targeting loans of about $50,000, in a direct shot at a number of startups that have been moving into the same area.

Mr. Williamson said that, in making these announcements, CIBC is distinguishing real businesses from "shiny objects," in a reference to the thousands of startups that have sprouted in recent years as fintechs grow in popularity.

Some analysts appeared to take a wait-and-see approach to the ambitious goals.

"Longer term, if the new message of No. 1 (and leading in innovation) truly spreads throughout the organization and financial results meet or exceed targets, we believe a shift in valuation can occur," Darko Mihelic, an analyst RBC Dominion Securities, said in a note. "We hold back on our enthusiasm shorter term."

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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 17/05/24 4:00pm EDT.

SymbolName% changeLast
CM-N
Canadian Imperial Bank of Commerce
+0.94%49.4
CM-T
Canadian Imperial Bank of Commerce
+0.93%67.24
NA-T
National Bank of Canada
+0.21%115.66

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