Gerald McCaughey, who cut risk as head of Canadian Imperial Bank of Commerce after costly missteps in the 2000s, plans to retire in two years.
McCaughey, 58, will step down as chief executive officer of Canada’s fifth-biggest bank on April 30, 2016, Canadian Imperial said yesterday. He’s the fourth Canadian bank CEO since last April to announce retirement plans, marking a leadership change in what the World Economic Forum has touted for six straight years as the soundest banking system.
“We have accomplished much of what we set out to do when I took the role of CEO nine years ago: That is to make your bank strong and well-positioned for success for the next decade,” McCaughey said yesterday at the Toronto-based firm’s annual investors meeting in Montreal. “My immediate priority is to continue to lead the execution of CIBC’s strategy while the board completes its work on succession.”
The two-year notice is long even in Canada, where other bank leaders have signaled intent to leave quarters in advance. Toronto-Dominion Bank CEO Ed Clark, 66, gave a 19-month warning when announcing his retirement will start in November. Royal Bank of Canada’s Gordon Nixon, 57, the longest-serving Canadian bank CEO, gave eight-months notice when saying he will leave in August. Bank of Nova Scotia’s Richard Waugh, 66, who retired last year, gave a five-month heads-up.
CIBC rose 0.2 percent to C$95.81 yesterday in Toronto. The lender climbed 5.6 percent this year compared with a 2.4 percent gain in the Standard & Poor’s/TSX Commercial Banks Index.
“In order for the board to have the maximum flexibility and transparency, I thought the two years was a period of time that was optimal for everyone,” McCaughey said in an interview. “The actual time that I will stay will be dependent upon the board’s succession process.”
The board has been scouting for future leadership, Chairman Charles Sirois said in an interview in Montreal.
“We’ve been always looking, just to see what is available outside, what is inside, how are people inside developing and where we’re heading,” Sirois said.
Canadian Imperial needs to be run by someone who understands the retail business in its home market and could look to David Williamson, head of Canadian personal and business banking, said Meny Grauman, an analyst at Cormark Securities.
“He’s proving himself as we speak,” Grauman said. “The market’s coming around to having him in that role. He’s been pushing up core loan growth and expense management is strong.”
Other senior executives include Victor Dodig, 48, who oversees Canadian Imperial’s wealth-management business, and Chief Financial Officer Kevin Glass. The investment-banking unit is led by Richard Nesbitt, 58, who last month announced plans to retire in October 2015.
Dodig would be a natural for the CEO short-list because of his wealth-management experience, given the company’s focus on that business and shift from investment banking, said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto.
“All the banks are moving towards wealth management -- maybe there’s someone in the wealth-management area that may move the company forward,” said Nakamoto, whose firm manages about C$4.7 billion ($4.3 billion) including bank shares. “The last thing they need is someone going in and beefing up the investment banking side. They went through a gut-wrenching experience getting out of that.”
If the firm looks outside, it may consider Toronto-Dominion’s head of Canadian banking, Tim Hockey, Nakamoto said.
The company isn’t likely to hire a U.S. banker, said Tom Lewandowski, an analyst at Edward Jones & Co.
“There’s a bias for executives within the six big Canadian banks to move up and either choose homegrown talent or go find someone who’s intimately familiar with the Canadian market,” Lewandowski said in a phone interview from St. Louis.
McCaughey began his career in 1981 as an account executive with Merrill Lynch. He joined CIBC when it bought Merrill’s Canadian private-client business in 1990. He became president of CIBC’s Wood Gundy Private Client Investments, and five years later became a senior executive vice president responsible for wealth management. McCaughey was appointed to head CIBC’s investment-banking business in February 2004, then advanced to become chief operating officer. He became CEO on Aug. 1, 2005, following the retirement of John Hunkin.
“He’s been the architect for toning down the risk for the company,” said Anil Tahiliani, who manages about C$1 billion including CIBC shares at McLean & Partners in Calgary. “They’ve become a more Canadian-focused bank while some of the other banks have become more U.S.-centric.”
McCaughey’s transition was rough. On his first week, Canadian Imperial disclosed a $2.4 billion settlement to resolve claims it helped failed energy trader Enron Corp. inflate revenue by hiding debt. Other missteps followed, including bad bets on U.S. subprime mortgages and structured debt that cost the company more than C$10.7 billion in pretax writedowns from 2007 and 2009, more than any other Canadian bank during the financial crisis.
McCaughey responded by selling most of CIBC’s New York-based investment bank, replacing executives and exiting businesses such as European leveraged finance while scaling back on debt securities. The bank now is focused more on Canadian retail banking and wealth management.
“CIBC today is extremely well-positioned for future growth,” McCaughey said in an interview after the meeting. “We are rich in talent for many of the most senior positions at the bank, and that would include the CEO position.”
Lewandowski at Edward Jones called the two-year notice “strange,” even for Canada.
“Generally you like to tie this stuff up with a bow,” he said. “You announce a successor, the successor comes in, they issue a statement, they have a nice picture together and you move forward.”