CIBC's Dodig, With Most at Stake, Says Canada Must Innovate

  • Country can't rely on low dollar, interest rates for growth
  • CEO speaks in Ottawa about how to boost domestic growth

There may be no banker with as much at stake in Canada’s economy than Victor Dodig, chief executive officer at Canadian Imperial Bank of Commerce.

His Toronto-based company relied on domestic personal and commercial banking for about three quarters of annual profit in 2014 -- the highest among Canada’s top five lenders. So, when Dodig talks about the economy and offers up policy advice -- as he did Tuesday in a speech in Ottawa -- there’s a lot hanging in the balance.

Dodig’s warning: Don’t assume a depreciating currency and low interest rates will fully revive manufacturing and save the economy. Without innovation, Canada risks faltering.

“Even with the current weakness in the Canadian dollar, it is unrealistic to think that this traditional capacity will be rebuilt,” Dodig said, according to the embargoed text of the speech, the first in Ottawa by a bank chief executive since Prime Minister Justin Trudeau’s Liberal Party came to power in October. “The reality is that going forward economic growth will come from different kinds of businesses, across all key sectors of our economy, all driven by innovation.”

Economy Focus

The speech, delivered to a group of policy makers and focused on growth rather than financial regulation, is one indication Canada’s bankers see a sluggish economy as the next battleground. The country’s lenders are facing dwindling growth in domestic banking amid worries households are saturated with debt in an economy that’s also struggling with an oil-price slump.

With an economy forecast to grow this year at a pace just over 1 percent, the federal government is pledging deficit-financed stimulus spending. That’s on top of two interest-rate cuts by the Bank of Canada to boost spending and a currency that’s depreciated 13 percent this year.

It’s a weakening outlook that has soured investors on the nation’s banks. The Standard & Poor’s/TSX commercial banks index is down 5.2 percent in 2015, putting it on pace for the worst showing since the financial crisis. In a 20-minute interview before the speech, Dodig outlined his prescriptions to generate more growth.

“Canada needs to pivot even more aggressively to being a modern economy across all our sectors,” Dodig, 50, said. “That’s really the essence of the speech and then the question is how do we do that.”

He cited three areas for improvement: matching what Canadians are studying to what the labor market actually needs; increasing the access for innovative companies to funding, particularly “patient capital” that helps them grow beyond the initial start-up phase; creating “innovative ecosystems” that will allow companies to grow.

“I think we have a very stimulative monetary policy in place, the dollar has clearly depreciated, that’s helped out our exports to some extent,” Dodig said. “The question is how do we innovate to add value to drive growth.”

Dodig took over as chief executive in 2014 from Gerald McCaughey, and shifted away from his predecessor’s focus of de-risking toward a strategy of growth. That includes a plan to strengthen customer ties through more advisory services and pursuing more U.S. wealth-management takeovers.

The strategy has paid off for CIBC, which has outperformed the banking sector even with its heavier reliance on Canadian banking operations. CIBC shares, which gained 0.7 percent this year, rose 0.3 percent to C$100.46 at 1:23 p.m. trading in Toronto.

“Our performance over the past year has really been a function of the new leadership team that’s come in, that’s laid out a path for growth,” Dodig said in the interview. “The market has responded positively.”

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