The groundwork for the next era of Canadian banking has been set.
Capping off one of the biggest periods of corner-office change to hit the country's financial sector in decades, the last unresolved succession plan at a major lender has been cleared up now that CIBC named Victor Dodig to lead the bank into the foreseeable future. His appointment comes on the heels of similar succession plans at Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia, underscoring an industry-wide upheaval that started late last year with the appointment of Brian Porter as CEO of Scotiabank.
Once the transitions are complete – the last being Bharat Masrani's ascension to CEO at TD in November – the new leaders will face a banking landscape that looks dramatically different from the one their predecessors got to know.
Over the past three years Canadian banks have ridden the mortgage boom fuelled by ultralow interest rates, and the record lending run is widely expected to cool, forcing the banks to look for other growth drivers. With soaring stock markets, wealth management has been labelled one of the hot tickets. CIBC has set a specific target to generate 15 per cent of its earnings from this sector, which includes mutual fund sales and offering investment advice, up from 14 per cent at present. And all four banks that named new CEOs have been looking to beef up their investment product shelves.
The banks' current operating environment is both prosperous and perilous. While the lenders' share prices are close to all-time highs and $2-billion quarterly profits are now easily churned out by Canada's two largest banks, the industry is evolving – fast.
"We're going through another secular change," said Dave McKay, RBC's new CEO who starts Friday. New competition is emerging from the likes of Google and Apple, which are devising products that allow people to pay by swiping their smartphones at the checkout counter.
The change isn't confined to the banks. New chiefs are also in place at the Office of the Superintendent of Financial Institutions and Canada Mortgage and Housing Corp. Both the Bank of Canada and the federal finance department also have new leaders.
Amid this uncertainty, the strategic focus is clear for most banks. TD is relying on U.S. retail banking growth; Scotiabank is leveraged to its international operations that bet on a growing middle class in Mexico, Colombia, Peru and Chile; and RBC wants to build out its wealth management and capital-markets arms beyond its home borders, particularly in the U.S. and Europe.
Of all the succession plans, CIBC's has been the most unusual. While the other banks have had transition periods ranging from seven to 18 months, offering the new heads time to get familiar with all aspects of the business, CIBC's will last less than two. Mr. Dodig, the bank's wealth management head, will replace current CEO Gerry McCaughey on Sept. 15.
CIBC's plan also stood out because news of Mr. McCaughey's eventual departure, first announced in April, shocked investors, largely owing to the fact he was just one year into a four-year contract. Meanwhile RBC, TD and Scotiabank investors widely expected CEO transitions because the old guard was aging. Adding to the confusion, CIBC did not name a successor immediately, while all the others did.
CIBC has also had a cloud of uncertainty hanging over it since Mr. McCaughey announced he would retire at some point over the next two years. (The September transition date came faster than almost anyone expected.) It took much longer for CIBC to stabilize itself coming out of the financial crisis than its bigger peers, but the bank is back on solid footing and its retail banking arm has unleashed a slew of strategic initiatives in the past year, including revamping a key loyalty rewards credit card and reworking the way the bank seeks out new mortgages. CIBC investors feared that all this work would be for naught once a new CEO was named – especially because the board of directors was keen on interviewing external candidates.
Mr. Dodig's appointment has put many of these concerns to rest because he has been with the bank since 2005, when Mr. McCaughey hired him away from UBS Global Asset Management (Canada), where he ran the Swiss bank's Canadian wealth-management arm. Although Mr. Dodig is currently running wealth management, he spent four years leading the bank's retail distribution and sales team, and he said in an interview that he won't abandon the current retail banking initiatives to favour his current division. Wealth management "will just be an element of our strategic growth program," he said in an interview.
The incoming CEO also stressed that he understands how much investors value continuity in terms of the management team – something no one could be sure of given CIBC's rocky history with CEO replacements. Although he won't commit to keeping specific names just yet, he said "consistency in terms of strength and team is going to be important."