Canadian Imperial Bank of Commerce’s U.S. expansion is just getting started.
During an investor presentation Tuesday, CEO Victor Dodig said that the Toronto company, which has been on a U.S. buying spree over the past year, hopes to eventually generate roughly one quarter of its annual profits from operations south of the border.
Despite its name, CIBC is no longer “just a Canadian bank,” he said, having tied a portion of its future, just like its peers, to growth in the U.S. economy.
Following its June acquisition of Private Bancorp in Chicago, CIBC now generates about 13% of its yearly earnings from its U.S. operations, Dodig said. He expects that figure to increase as CIBC begins to attract loans and deposits from larger U.S. clients with global operations.
“Over time, we see the U.S. getting to 25%,” Dodig said, speaking in New York at a conference sponsored by Barclays. He added that he would like to generate approximately 70% of the company’s profits in Canada, and another 5% from other global operations.
How quickly CIBC hits that target, of course, depends on a variety of factors, including the pace of economic growth in the U.S. and the level of competition it faces in here in the states. Other executives speaking at the conference said that fierce competition for quality credits was stymieing commercial loan growth while some expressed concern that consumers are becoming overextended.
In addition to acquiring PrivateBancorp for about $3.8 billion, CIBC in June bought Geneva Advisors, a small wealth management firm in Chicago. Next week, the company expects to rebrand its U.S. businesses — which also includes Atlantic Trust, a wealth firm in Atlanta — under the CIBC brand, Dodig said.
CIBC has no plans to make any more acquisitions as it focuses on integrating the CIBC and Geneva deals, but Dodig did not rule out future acquisitions down the road.
Consolidation was a popular topic of discussion at the conference as investors pressed banks about how they intend to deploy excess capital.
Asked about its M&A ambitions, Synovus Financial in Columbus, Ga., pointed to its purchase last year of Entaire Global Cos., a private life insurance premium finance lender, as the kind of deal that it might like to pursue. Kevin Blair, Synovus’ chief financial officer, said that the line of business deals can generate meaningful returns — the Entaire acquisition generates about $30 million to $40 million of loans per quarter for Synovus — and are simpler to pull off than combining two banks.
“We believe the easiest place to invest is within ourselves,” Blair said. “As long as we continue to have outsized growth, which we’ve had, we don’t see the need to go do large bank transactions.”
The $31 billion-asset Synovus continues to shift its loan mix from one that was once heavily focused on commercial real estate to one that is now more evenly balanced between commercial and consumer lending.
Blair said that in recent quarters the bank has “not been seeing a real robust loan demand market on the commercial side,” adding that competition has been stiff for what good credits are available in the market.
Its growth in consumer lending has come largely from two areas, he said. The first is in mortgage lending, where it has made a conscious decision to target wealthier clients. It has also benefited from its partnership with GreenSky, a third-party lender that offers point-of-sale loans at home improvement stores.
“We’re in a position where when some of our businesses are struggling due to utilization, we’re able to offset that with growth in other areas,” Blair said.
Still, several bank executives at the conference said they are growing concerned about consumers’ ability to keep up with their monthly payments.
Capital One Financial Chairman and CEO Richard Fairbank warned that industrywide growth in revolving credit has recently been outstripping pay increases.
During the second quarter, revolving consumer credit outstanding rose by 4.9%, while median wages rose by less than 4%, according to government data. Fairbank said that a surge in credit supply can be expected to presage deterioration in credit performance.
“I think we’re generally in the middle of the credit cycle,” he said. “The ball is clearly rolling in the direction of things heating up over time.”
Meanwhile, Fairbank is bracing for fallout from the Equifax data breach, in which the personal information of more than 140 million Americans was compromised.
He noted that whenever a data breach occurs, card issuers bear the cost of replacing credit cards. “The ball does run downhill, and it stops at the card companies,” he said.
The Equifax breach is larger than many of its predecessors, and Fairbank was reluctant to estimate its ultimate cost to Capital One. But he did say, “I’m assuming that there are going to be a bunch of our customers affected, and it’s going to be costly to them and to us.”