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
"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
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,
"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
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
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
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.