It has been a long road to redemption for Canadian Imperial Bank of Commerce, but the lender's retail banking revamp is finally bearing fruit.
For the first time in years, there is a buzz inside CIBC – a confidence instilled in its executives by early signs of above-industry-average growth. After years of lagging its peers, retail banking head David Williamson says he and other executives can't help but feel a little swagger.
Instead of ducking questions about its strategy, CIBC now takes them head on. The bank is also advertising heavily to rebuild its profile. Finally, "we've got something to talk about," Mr. Williamson said in a recent interview.
Executives at Canada's fifth-largest bank were heavily criticized for multiple capital-markets missteps leading up to the financial crisis, and then they suffered through sub-par retail banking growth during the first few years of the economic recovery.
Just as Bay Street started believing in the bank again, former chief executive officer Gerry McCaughey suddenly announced in April that he would follow his number two, Richard Nesbitt, out the door. By September the bank's top two executives were gone, and a new leader had been installed. Such tumult could easily have destroyed the momentum CIBC had been trying to build. But the remaining management team trudged on and stayed committed to retooling its bread-and-butter domestic operations.
Canada's financial institutions are loath to publish their market share statistics – the metrics that retail bankers live and die by – but Mr. Williamson said that in 2014 CIBC grew faster than the industry average, something it wasn't doing three years ago.
It is a sharp reversal from the first few years after the financial crisis, when CIBC's growth lagged its competitors. To many, it looked like the bank was lost in the woods.
That predicament would be tough for any of the country's big banks, but the conundrum was particularly tough for CIBC because it is heavily exposed to its home market; the domestic banking operation generates 70 per cent of its profits.
To shake things up, CIBC named a new retail head in 2011 and started rethinking the way it did business. Historically its profits were tied to individual products, such as Aeroplan credit cards or residential mortgages that were brought in by brokers. But those client relationships weren't very deep, meaning many of those customers only had one connection to the bank, so CIBC adopted a new retail banking strategy. "Everything can be traced to that core shift," Mr. Williamson said.
The bank's decision to end its relationships with mortgage brokers seemed risky, but could be justified because many of its rivals had done the same.
Then CIBC took another risk, opting for hardball negotiation tactics during the renewal process for the Aeroplan accounts. This was no small matter: The Aeroplan business accounted for 11 per cent of the bank's total profit. Ultimately, half the accounts were sold to Toronto-Dominion Bank; CIBC kept only the accounts for which the client had another relationship with the bank, such as a chequing account or a mortgage.
Since then, CIBC has bet big on new partnerships, signing deals with Tim Hortons Inc. (to launch a new credit card) and the Greater Toronto Airports Authority (to be the sole bank allowed to advertise and operate inside Canada's largest airport). The strategic shift was capped by the branch openings at the airport this week.
The Tim Hortons deal illustrates what CIBC is after. When the bank launched a co-branded card with Petro-Canada a few years back, only 4 per cent of people signed up for a chequing account. The equivalent figure is more than 50 per cent for people who sign up for the 'Double Double' credit card, Mr. Williamson said.
However, CIBC's revamp has come at a tough time in the industry. Switching rates – which illustrate the propensity of a client to switch banks – are plummeting into the single digits. To cope, CIBC said it isn't looking for an outright steal. "It's not necessarily the binary switch we're looking for," Mr. Williamson said. Instead, CIBC wants to make itself seem like a more convenient alternative and give Canadians a good reason to use an empty CIBC chequing account they may have.
Even the bank's own executives have been surprised by the possibilities of this approach, Mr. Williamson said. When CIBC launched a mobile app that allows clients to snap a picture of a cheque with their phone to deposit it, scores of idle accounts suddenly turned active.
However, the bank is the first to say the recent successes can't be heavily celebrated. This is just the start, and CIBC has warned that it is still investing heavily in its retail banking systems, such as one that will make it easier to cross-sell products to clients. Such expenses could make it difficult to realize profit growth.
And while the recent energy is encouraging, it could also fizzle out. It is not lost on anyone at the bank that it still has to prove its expensive investments will pay off. "There's a lot more to do," Mr. Williamson said.