Canadian Imperial Bank of Commerce said Thursday that it would slash 4,200 jobs, or 8% of its work force, as part of a restructuring to reduce annual operating costs by $339 million by the end of next year.
The restructuring was announced with the banking company's earnings report for the fourth fiscal quarter, which ended Oct. 31. CIBC, Canada's second-largest bank, recorded $200.8 million in charges during the period, dampening net income to $5.4 million, from $267 million in the third quarter and $23.1 million in the same period last year.
The announcement puts in motion plans outlined by John Hunkin when he took over as chairman and chief executive officer of the $169.9 billion-asset company in June. CIBC, like Canada's other three largest banks, has been scrambling all year to find a way to boost revenues and hold down costs.
Originally the banks planned to accomplish those goals through two huge mergers: one between CIBC and Toronto-Dominion Bank and the other between Royal Bank of Canada and Bank of Montreal. The Canadian government blocked both deals last December over competition concerns, forcing the four banks to fight it out independently.
Without the current charges, CIBC's fourth-quarter profits of $206 million, or 68 cents a share, beat the consensus estimate a nickel. The bank attributed the performance to a rebound in revenues from capital markets and a doubling in fee income over the same period last year. CIBC also announced plans to repurchase 5% of its common stock.
In a conference call Thursday afternoon, Mr. Hunkin said the quarter's results were "reasonably good," but, he added, it was "not nearly as good as we were aiming for."
The restructuring program aims to achieve sustained return on equity of 18% annually by 2002. At fiscal yearend 1999, CIBC's return on equity was 12.7%. "We have some serious work to do," Mr. Hunkin said.
The charges include $124.8 million for the restructuring, $46 million for a securities writedown, and $21 million for technology.
They follow by roughly a year a restructuring in the company's securities arm, CIBC World Markets, that eliminated 5% of that unit's jobs and reduced operating costs by $200 million.
Analysts said the cost cutting comes as profit margins from traditional lending businesses are under pressure. "There has been a slowdown in revenue growth overall," said Heather Wolf Mattes, an analyst at Goldman Sachs & Co.
Mr. Hunkin told the bank's 52,900 employees about the job cuts in a memorandum distributed Thursday. Most would come from the company's retail operations, which are concentrated in Canada.
Some corporate-level jobs would also be trimmed, and CIBC plans further cuts in CIBC World Markets outside of Canada. Over 1,000 positions have already been eliminated.
Mr. Hunkin said CIBC would continue to invest in high growth businesses, including expansion in consumer markets in Canada and the United States. CIBC has opened five virtual bank locations in Winn-Dixie grocery stores in the southern United States since October, and plans to continue the expansion through that chain and other supermarket outlets.
The virtual bank locations are pavilions that gather new customers who agree to forgo access to a real branch for electronic and telephonic access to their money at CIBC.
Ongoing investments in the businesses would make it necessary "to continue to identify and implement further cost reductions on an ongoing basis," he said.
Analysts said they were pleased that the bank had begun its cost-cutting initiatives.
But Ms. Mattes from Goldman Sachs said she was concerned that the bank may have overly aggressive ambitions for cost reduction.
"There's no guarantee that they're going to be able to achieve it," she said.