A CIBC sign is seen outside of a branch in Ottawa, Ont.Chris Wattie/The Globe and Mail
Canadian Imperial Bank of Commerce has an ambitious target to almost double the share of its profits coming from its U.S. banking arm within three years.
At an investor update Wednesday, CIBC outlined its most detailed plans to date for its U.S. operations, which were transformed by a $5-billion (U.S.) deal the bank struck this year to buy Chicago-based PrivateBancorp Inc., a successful mid-market commercial lender that formerly operated as the PrivateBank.
The strategy laid out by CIBC executives envisions the total share of its earnings coming from U.S.-based commercial banking, wealth management and capital markets climbing from the current 9 per cent to 17 per cent in 2020.
CIBC has made forays into the United States before, but retreated from the highly competitive market a decade ago after taking billions of dollars in writedowns and losses. This time, chief executive officer Victor Dodig is convinced he's found the right bank on which to build a meaningful U.S. business – one that will make CIBC less concentrated in Canada. If successful, it could inject a stream of fast-rising profits to supplement the bank's modest growth at home.
"Everyone's always said: 'Well, you're too Canadian-focused.' Our goal is to diversify outside of Canada," Mr. Dodig told investors on Wednesday. "Now, with our investment in the PrivateBank, we have a significant opportunity to grow in the United States."
Larry Richman, who came over as CEO of the former PrivateBancorp and now leads CIBC's U.S. division under the brand name CIBC Bank USA, expects profit from the businesses he oversees to rise 10 per cent to 12 per cent annually over the next three years. And that's coming off 2017, which Mr. Richman described as "one of the best years in the history of PrivateBank."
The U.S. operation is projected to grow much faster than the Canadian retail-banking arm, which remains CIBC's core engine and projects profit growth of 5 per cent to 7 per cent a year. But by pushing into the United States, CIBC is also trying to mitigate the risk of being overly reliant on Canada, where banks continue to be dogged by concerns about rising house prices and high consumer debt.
New regulations set to take effect Jan. 1 will make it harder for some people to qualify for mortgages, which has banks predicting they will originate fewer new loans. CIBC is no exception, but the bank expects its mortgage business will continue to gain ground after growing faster than those of its peers over the past year.
"We expect to be growing better than market in 2018 but more in line with the group average," said Christina Kramer, group head of Canadian personal and small-business banking.
Rising interest rates are expected to add to the strain on some consumers, many of whom have already taken on record levels of household debt. So far, those loans have performed well and losses have been low among Canada's six biggest banks, helped by a healthy economy. Mr. Dodig said there has been "a surge of credit expansion" that can't last, but that high levels of indebtedness would only become a problem if an economic shock were to cause Canada's unemployment rate to rise.
"That's what drives all the losses," Mr. Dodig said. "If you see [gross domestic product] contraction and unemployment go up, even if interest rates stay low, you'll see pain, for sure."
For now, banks are bullish on the economic forecasts for both Canada and the United States, and Mr. Dodig is hoping "people will get a little more prudent" with their debt levels. "It's our job to be able to advise our clients on what an appropriate level of debt is," he said.
But he acknowledged that the benign credit conditions that allowed customers to pile on debt won't last forever.
"When the cycle turns, it'll turn for all of us," he said, adding: "I think what we need to do is build our institution for resilience to deal with those shocks, and that I'm very confident that we are doing."