Barely a year after shifting its focus from commercial banking to investment, Canadian Imperial Bank of Commerce is moving into trading bank loans and derivatives and underwriting high-yield debt in the United States.
John Hunkin, president of CIBC Wood Gundy, the bank's capital markets, underwriting, and trading arm, said the U.S. expansion is part of a drive to help mostly Canadian corporations find funding in the United States, and to help them manage their interest rate and currency risks.
"Corporations have greater opportunities (to fund themselves) globally, but they also face greater risks," Mr. Hunkin said.
The bank is also planning to increase the size of its U.S. securitizations. The Toronto-based bank already runs the third-largest asset securitization program for commercial paper, after Citicorp and First National Bank of Chicago, through the $5.7 billion Asset Securitization Cooperative Corp.
The bank, Canada's second largest, with more than $110 billion of assets, has hired over 100 derivatives specialists, including six on Thursday, and is planning to hire more.
Last month, it acquired the Argosy Group, a New York investment bank that specializes in underwriting high-yield debt.
Mr. Hunkin said CIBC hoped to boost the amount of high- yield debt Argosy underwrites to $1 billion, from the $500 million it posted in 1994.
The bank is especially interested in finding customers that are in the universe of below-investment-grade companies with sales of $50 million or more. Mr. Hunkin said there are 15,000 such firms in Canada.
Due to the limited size of Canada's capital markets, these companies turn mainly to the United States when they seek funding.
According to CIBC estimates, below-investment-grade Canadian companies have issued around $5 billion in securities in the United States over the last three years.
The bank's moves in the U.S. are part of a strategy set in 1994 to follow the lead of big U.S. institutions, like J.P. Morgan & Co., which were expanding capital markets activities.
As part of this drive, Canadian Imperial obtained limited corporate debt and underwriting powers from the Federal Reserve Board under section 20 of the Bank Holding Company Act.
Analysts said this latest foray was prompted by demands from corporate customers for capital market funding and risk management.
"It's consistent with what they said they're going to do and it makes a lot of sense to me," remarked Hugh Brown, a Canadian banking analyst in Toronto with Nesbitt Burns.
Roy Palmer, an analyst with Bunting Warburg Inc., agreed. "Anyone who concentrates on corporate lending is blind to the banking industries' experience," he commented.
However, Mr. Palmer said that Canadian Imperial needs to move cautiously, given the risks that have emerged in areas like derivatives. The bank, he said, needs to pay attention to who it hires.
"They may think they've got all the best people but there's really only one way to find out," Mr. Palmer said.