Commerce Court
The Canadian Imperial Bank of Commerce (CIBC) is Canada's second largest bank. The result of a 1961 merger between the Imperial Bank of Canada and the Canadian Bank of Commerce, CIBC today is headquartered in Toronto and operates 1,486 branches in Canada and 108 offices overseas. The bank has been innovative in meeting the needs of an international marketplace that is growing in complexity. Recently split into three units--Individual, Corporate, and Investment banks--CIBC's specialized service has made it a competitive player among Canadian banks.
The older of CIBC's two predecessors, the Canadian Bank of Commerce, was founded in 1867, the same year as Canada's confederation. While Canadian statesmen discussed the advantages of uniting the British North American Colonies under one parliament, a prominent Toronto businessman, William McMaster, was busy acquiring a bank charter from a group of financiers who had been unable to raise the necessary capital to put it to use. McMaster opened the Canadian Bank of Commerce on May 15, 1867 and under his leadership, the bank grew at a tremendous rate. The bank's paid-up capital swelled from $400,000 to $6 million in its first seven years and it soon had offices in New York and Montreal as well as throughout Ontario. Canada was in the midst of an industrial revolution at this time, and the Bank of Commerce was instrumental in financing a number of large capital projects. For its first 20 years, the bank's prosperity fluctuated with economic conditions, but in general it grew and was profitable.
In May of 1893, the bank joined the Canadian push westward by establishing a branch in Winnipeg. In 1898 branches were established in Dawson City, Yukon Territory; Vancouver, British Columbia: and Skagway, Alaska. In 1900, the bank acquired the Bank of British Columbia, strengthening its position on the Pacific Coast. During the next ten years the Canadian Bank of Commerce acquired several other financial institutions; at the start of World War I, it had 379 branches.
During the 1920s, the bank nearly doubled its branch network by acquiring the Bank of Hamilton and later the Standard Bank of Canada. The general prosperity of the 1920s was reflected in the bank's growth. At the time of the stock market crash in 1929, the Canadian Bank of Commerce's assets were C$801 million. The Depression that followed, however, took a heavy toll on the bank, and its assets did not return to their pre-Depression high until 1940.
World War II finally brought economic recovery to Canada. The Canadian Bank of Commerce was active in the war effort, leading victory loan drives among other things. After the war, the bank grew steadily. By 1956, assets had reached C$2.5 billion, and by 1960, they had passed C$3 billion. Despite this success, however, the bank felt pressured by increasing competition and in 1961 agreed to a merger with the Imperial Bank of Canada.
The Imperial Bank of Canada was established in 1875. Its first president, Henry Stark Howland, had been the vice president of the Canadian Bank of Commerce. The bank's first office actually had no vault--overnight deposits were stored at another bank--yet in its first year of operation, the Imperial Bank made a profit of C$103,637. Reluctant to open too many branches too soon, the Imperial Bank's growth was somewhat slower than that of the Bank of Commerce during the same period. By 1880, however, the Imperial Bank had frontier fever. That year it opened a branch in Winnipeg, and the next year it branched out to Brandon and Calgary. By 1900, the Imperial Bank had 32 branches spread across the continent.
Between the turn of the century and World War I, Canada began to tap its mineral resources with amazing speed. The Imperial Bank of Canada earned the nickname the "Mining Bank" because of its ties to that industry.
After the war, the bank opened about 50 branches within just a few years, but not all of them survived the volatile economic conditions that followed the war. In the 1920s, deposits reached record levels, but the stock market crash in 1929 caused severe problems for the bank. Many of its loans went bad, and a number of branches were closed. The bank struggled to recuperate during the late 1930s and by the end of the decade it was making headway once again.
During World War II costs of operation rose faster than earnings, leading to lower dividends during the war years. About one-third of the Imperial Bank's 1,800 employees enlisted in the various services, and 53 died.
After the war, Canada entered a period of widespread prosperity and the Imperial Bank grew rapidly. In 1956, it acquired Barclays Bank (Canada) and increased assets by nearly C$40 million; by 1961, the Imperial Bank had assets of more than C$1 billion and 343 branches.
The amalgamation of the Canadian Bank of Commerce and the Imperial Bank of Canada in 1961 created the largest bank in Canada at the time. The new Canadian Imperial Bank of Commerce had at its helm L.S. Mackersy, of the Imperial Bank, as chairman and N. J. McKinnon, of the Bank of Commerce, as president and CEO. Altogether the new bank accounted for about one quarter of the assets of all Canadian banks combined.
In 1962, McKinnon became chairman of CIBC's board of directors and steered the bank's course from that position until 1972. The 1960s were a prosperous time for Canada, and the nation's economy grew strongly. The Canadian Imperial Bank of Commerce's net earnings increased substantially each year throughout the decade. The bank also strengthened its foreign operations. At the end of the decade, Canada relaxed some of its restrictions on the banking industry. Notably, interest rates on loans were no longer limited to 6%. In this liberalized banking climate, Canadian banks did very well. In 1969, CIBC added 46 new branches while expanding its work force by only 5%. By 1970, annual profits had risen to C$43 million, more than twice what they had been at the time of amalgamation.
In the early 1970s, Canada began to invest heavily in energy development and agriculture, and the Canadian Imperial Bank of Commerce helped with the financing. Throughout the decade the bank had a close relationship with Canadian oil companies. That relationship would eventually cause the bank problems, but in the early 1970s, when oil prices were skyrocketing, investment in petroleum-related industries seemed like a gold mine.
In 1973, J. P. Wadsworth replaced McKinnon as chairman of CIBC, and remained in office until 1975. Late 1973 brought worldwide recession. Although Canadian domestic demand was adequate, overseas demand was low. This spelled trouble for Canada, whose economy was heavily dependent on exports. Nonetheless, CIBC continued to improve its earnings each year.
In 1976, Russell E. Harrison succeeded Wadsworth as chairman and CEO of CIBC. Harrison tended to run the bank in an autocratic manner. Top executives were not always given real power to make key decisions. In the late 1970s and early 1980s Canadian industry grew very quickly, and CIBC made large loans to many expanding firms.
In 1980, however, this policy began to falter. Massey-Ferguson, the Canadian tractor manufacturer, was in danger of collapsing, and the Canadian Imperial Bank of Commerce was Massey's biggest lender. The Canadian government worked with Massey's creditors to try to bail the company out by allowing it to raise new capital, but it didn't work. Massey lost US$240 million in 1981, and US$413 million in 1982, leaving CIBC with a substantial amount of bad debt.
The Dome Petroleum Company was another of CIBC's large corporate debtors in deep trouble in the early 1980s. When oil prices dropped sharply in 1982, Dome lost more than C$100 million; CIBC had loaned Dome more than C$1 billion. The failing company was eventually bought by Amoco Canada, but again CIBC was left with a pile of bad debt. Between 1979 an 1984, CIBC had the lowest average return on assets of the five largest Canadian banks.
In May, 1984 R. Donald Fullerton took over as CEO and set about restructuring the bank's operations. Fullerton eliminated branches to cut costs and service overlap and injected new blood into the bank's senior management. He also attacked the bank's bad debt, slowly eliminating bad loans from the bank's portfolio.
In 1985, a record number of farm failures caused mild concern among Canadian bankers. Canadian Imperial estimated that about 10% of its agricultural loans were in jeopardy. The problem was not nearly as severe in Canada as it was in the United States, however, where thousands of farmers defaulted on loans.
Under Fullerton's leadership, the bank bounced back from the troubles of the early 1980s to set a new earnings record in 1985. An aggressive new advertising campaign was launched in the United States as part of the bank's thrust internationally. In 1986, Fullerton announced that CIBC would split its operations into three separate units: the Individual Bank, the Corporate Bank, and the Investment Bank.
Each unit was to deal with a specific group of customers. The Individual Bank was CIBC's largest unit, employing three-quarters of the bank's workers to serve individuals and independent business people. The Corporate Bank was intended to provide standard financial services to a variety of Canadian and foreign companies. The Investment Bank was intended to take advantage of the upcoming liberalization of capital and other investment markets in Canada. It oversaw the operations of CIBC's brokerage firms and merchant banks overseas, and then domestically after June 1987, when Canada removed the regulations barring commercial banks from conducting investment banking activities. CIBC Securities Inc. was established in 1987 to offer stockbroker services. The bank also participated in a merchant bank, the Gordon Investment Corporation, with the Gordon Capital Corporation--each was an equal partner in the new bank. In Europe, CIBC operated CIBC Securities Europe Ltd. (formerly Grenfell and Colegrave Ltd.), and a stock brokerage for its overseas customers.
In 1987, Brazil announced that it would suspend interest payments on its foreign loans indefinitely. This action shocked the international banking community, which feared that other Third World countries would follow suit. In August, 1987, the Canadian government issued a guideline that required banks to set aside a large sum to protect against possible losses on loans to Third World countries. CIBC set aside $451 million, resulting in a net loss of $63 million for 1987, though assets increased by almost C$8 billion.
Worldwide deregulation and liberalization of financial markets has made banking more complex as well as potentially more profitable. During the mid- and late-1980s, CIBC responded innovatively to a changing marketplace. The bank regained the lost ground of the early 1980s and made a greater effort to expand overseas than any other Canadian bank. But CIBC still holds a significant portfolio of doubtful loans, a problem it will have to solve if the bank is to thrive. CIBC will have to walk the tightrope between aggressiveness, to keep it competitive, and caution, to keep its deposits safe.
Principal Subsidiaries: Canadian Imperial Bank of Commerce (New York); Canadian Imperial Bank of Commerce (California); CIBC Inc.; CIBC Leasing Inc.; CIBC Mortgages PLC; CIBC Leasing UK Ltd.; CIBC Investment Management Ltd.; CIBC Securities Europe Ltd.; CIBC Ltd.; Canadian Imperial Bank of Commerce (Deutschland) A.G.; Canadian Imperial Bank of Commerce (International) S.A.; Canadian Imperial Bank of Commerce (Suisse) S.A.; CIBC Finanziaria S.p.A.; CIBC Bank and Trust Company (Channel Islands) Ltd.; Canadian Eastern Finance Ltd.; CEF Capital Ltd.; CIBC (Hong Kong) Ltd.; CIBC Asia Ltd.; Bank of Commerce Jamaica Ltd.; CIBC Servicos Ltda.; Canadian Imperial Fund Managers (Cayman) Ltd.; Canadian Imperial Bank of Commerce Trust Company (Bahamas) Ltd.; Bank of Commerce Trust Company Barbados Ltd.; CIBC Bank and Trust Company (Cayman) Ltd.; Bank of Commerce Trust Ltd.; CIBC Australia Ltd.; D & D--Tolhurst Ltd.; CIBC New Zealand Ltd.
Comment about this article, ask questions, or add new information about this topic: