Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House


Hunkin era stumbles to a close at CIBC


Saturday, July 30, 2005

John Hunkin's reign as chief executive at the Canadian Imperial Bank of Commerce officially ended yesterday. Not a minute too soon for some clients, ex-clients and observers.

"Good riddance," said Quebec shareholders' rights advocate Yves Michaud, who considers most of the Toronto-based banks unfriendly to clients and shareholders, unfortunately entrenched in foreign tax havens and unreceptive to transparent corporate governance.

If any Canadian bank appeared in desperate need of a shake-up at the top, it was the CIBC.

Over the past few years, Canada's No. 5 bank has been implicated in an image-challenging series of scandals, lawsuits, writedowns and foul-ups, in the process becoming a poster bank for administrative laxity, legal heavy-handedness and general haplessness.

The CIBC has made news for a lot of the wrong reasons during the last half of Hunkin's six-year run as chief executive (see sidebar above).

CIBC has long had the reputation as Canada's "gunslinger' bank, constantly pushing the envelope and jumping into new products, but the recent string of misfires suggests it might be time for a change of approach.

"I'm pretty sure the new CEO (Concordia grad and former Montrealer Gerald McCaughey) will take these things into account and be extra careful. The (stock) market would not accept certain things that happened in the past," said Ramy Elitzur, professor of financial analysis at the Joseph L. Rotman School of Management at the University of Toronto.

Investors have been quite keen about the CIBC's stock of late, pushing the price to record levels this week, but that's largely because it's seen as one of the Canadian banks most likely to be taken over, said Ian Nakamoto, research director for investment house MacDougall MacDougall and MacTier Inc.

After retreating from its ill-fated effort to expand in the U.S. retail market, the CIBC is a bank with no clear growth strategy at this point, Nakamoto said.

"It's not obvious to me how they'll increase market share in Canada," Nakamoto said, adding that the bank definitely was damaged by its recent string of faux pas.

And it clearly still has work to do polishing its image.

In the 2003 annual report of the Ombudsman for Banking Services & Investments, the CIBC tied for first (with the Toronto-Dominion Bank) for the most customer complaints against deposit-taking organizations, and was second to TD in 2004.

CIBC World Markets tied for first (with TD Waterhouse) in the number of complaints against investment dealers in 2003, and was a close second to Merrill Lynch Canada in 2004.

This year, the bank has endured the public-relations nightmare of a five-month Quebec Superior Court trial in Montreal.

The case shone an unflattering light on the inner workings of the downtown office of brokerage CIBC Wood Gundy, where in the 1990s one-time vice-president Harry Migirdic had some of his clients unknowingly sign guarantees covering the trading losses of people they didn't know, including his uncle in Turkey.

CIBC Wood Gundy officials decided the guarantees were still valid and exercised them anyway, in one instance seizing $1.4 million from the accounts of retirees Haroutioun and Alice Markarian in 2001.

During the trial (on which a final judgment is expected any day), the Markarians' lawyers were able to show that CIBC had quietly settled out of court with another Migirdic client, failed to follow through on repeated suggestions from its own compliance department to talk to the Markarians, and never contacted the uncle in Turkey (actually a figurehead used by Migirdic), whose account, guaranteed by the Markarians, was $1 million in the hole.

"He owes $1 million to CIBC, but the branch manager never meets him. How is that possible?" Judge Jean-Pierre Senecal wondered aloud.

None of this was John Hunkin's doing. But ultimately, they were his responsibility, as chief executive. They happened on his watch.

McCaughey, who's been with the CIBC since 1990, is inheriting a cleaner ship, but whether he'll change course is another question.

"When somebody leaves and the second-in-command takes over, usually nothing changes much," noted professor Suresh Goyal of Concordia University's John Molson School of Business. "They're from the same corporate culture. They've got a lot of baggage already."

John Hunkin: a legacy of woe

Fake money in an ATM and documents faxed to a scrapyard hurt the CIBC's reputation under Hunkin's watch as CEO

  • In 2002, it announced the closing of its money-losing electronic banking operation in the U.S., terminating 1,100 jobs.

  • In 2003, it paid $80 million U.S. to settle claims it helped Enron Corp. conceal the extent of its debt. The bank still is facing a class-action lawsuit from investors, and has set aside $300 million for Enron-related litigation in the U.S.

  • In 2004, it was revealed the bank had mistakenly been faxing confidential financial information for years to a West Virginia scrapyard and a Montreal business that collects retail-chain carts. Adding to the embarrassment, an ATM at a CIBC bank machine in Moncton was found to have dispensed Canadian Tire money instead of actual cash.

  • During a one-month period in the summer of 2004, investment arm CIBC World Markets had three former brokers in three Canadian cities (including Montreal) suspended for life from the securities industry by the Investment Dealers Association of Canada for a variety of transgressions.

  • Also in 2004, several CIBC employees, including former CIBC World Markets chief executive David Kassie, left the company to join Kassie's new investment banking company, Genuity Capital Markets. CIBC filed suit against several of them, alleging breach of contract and theft of CIBC property. Several of them countersued, claiming the bank violated their privacy by hiring forensic experts to sift through their personal e-mail.

  • This year, CIBC apologized after more than 3,000 customers of President's Choice Financial received tax reassessment notices because its Amicus banking unit told Revenue Canada - falsely - they'd cashed in RRSPs.

  • This month, the bank disbursed $125 million U.S. to settle claims by the U.S. Securities and Exchange Commission that it assisted hedge funds in making improper, market-timed mutual-fund trades in 2003. The bank said it terminated some employees as a result of those actions and has since tightened procedures.

"CIBC must assume responsibility for the fraud.
For more information

(click on picture)