The large CIBC sign outside the bank's office building at the south east corner of King St. West and Bay St. on Oct 13 2015.Fred Lum/The Globe and Mail
Toronto-Dominion Bank and Canadian Imperial Bank of Commerce have been the banks to watch in the fourth quarter because of their well-telegraphed cost-cutting efforts.
The result is impressive: Restructuring charges related to job cuts at the two banks pushed up the bank-wide total to more than $1.2-billion this year, which is by far the largest one-year total for the Big Six banks over the past decade.
TD leads the group in 2015. It reported $349-million in restructuring charges in the fourth quarter to reduce what it called "costs and manage expenses in a sustainable manner and to achieve greater operational efficiencies."
It followed a similar $337-million charge in the second quarter, bringing TD's overall charge in 2015 to $686-million, or more than half of the banking sector's total restructuring charges for the year.
CIBC is a distant second to TD in terms of its restructuring charges: It reported a $211-million charge in the fourth quarter, largely due to employee severance, bringing its total charge for the year to $294-million.
Kevin Glass, CIBC's chief financial officer, said in a conference call with analysts that the fourth-quarter charge reflects "the initiatives we have been implementing to simplify our bank and better align our resources to meet the changing needs of our clients."
The charges land amid clear signs that the banking sector faces challenges: Banks are in the midst of making enormous investments to their technology offerings as consumers expect better online and mobile experiences, while new financial technology companies are threatening the banks' market share by offering competitive products and services of their own.
The slow Canadian economy is also presenting challenges. "We expect the Canadian banking industry will continue to face headwinds from a low interest rate environment and sustained low commodity prices in 2016," Victor Dodig, CIBC's chief executive officer, said in a conference call with analysts.
The restructuring charges at the two banks coincide with sizable reductions in their work forces, too – otherwise known as job cuts.
TD's employee count fell by 798 in the fourth quarter and a total of 1,594 during the year, or more than 1.9 per cent of its work force – more than half of the cuts related to the bank's Canadian retail operations. For CIBC, the employee count fell by 184 in the fourth quarter and 223 for the full year.
The gross number of layoffs could be higher, of course; these numbers reflect net changes in employee numbers, meaning that they also reflect hiring in areas where the banks need more workers, such as technology development.
To be sure, the trimming arrives despite the release of healthy financial numbers. TD reported a profit of more than $1.8-billion in the fourth quarter. After making some one-time adjustments, the bank said that its profit amounted to $1.14 a share, up 16 per cent from last year.
CIBC reported a profit of $778-million. After adjustments, it said profit was $2.36 a share, up 5.4 per cent. CIBC also raised its quarterly dividend – to $1.15 a share, up 3 cents – marking the seventh increase in the past eight quarters.
But, like their peers, some of the underlying trends in the fourth-quarter results were far from upbeat.
At CIBC, retail and business banking profit rose nearly 9 per cent in the fourth quarter from last year, but revenue gains lagged at less than 7 per cent.
Although TD reported a 10-per-cent gain in its Canadian retail profit, revenue rose just 1.6 per cent, suggesting that cost cutting can be an effective lever.
David Berman