VANCOUVER Canadian Imperial Bank of Commerce (CM.TO), grappling with some $11 billion in exposure to the battered U.S. subprime mortgage market, shook up its executive suite on Monday, ousting its chief risk officer and the head of its corporate and wholesale banking unit.
A management shakeup had been called for by the market and was duly applauded. Shares in CIBC, Canada's fifth-biggest bank, closed firmer, while the stocks of other Canadian banks ended mixed.
But analysts said the new management team has a tough job ahead to restore CIBC's credibility and to get the market to look beyond its subprime troubles and look at its healthy operations.
"The new team has their work cut out for them," said Blackmont Capital analyst Brad Smith, who has a "sell" recommendation on CIBC's stock.
CIBC said Ken Kilgour, its chief risk officer, who was only appointed to the job in May, and Brian Shaw, chief executive of CIBC World Markets, will leave the company.
World Markets, one of CIBC's two main banking units, houses CIBC's investment bank and capital markets businesses, which invested in subprime securities.
Tom Woods, 55, CIBC's chief financial officer, takes over as chief risk officer immediately. Woods has spent his whole career at CIBC.
Richard Nesbitt, the 52-year-old CEO of the TSX Group Inc (X.TO), operator of the Toronto Stock Exchange, will join CIBC as CEO of CIBC World Markets on February 29. Before his stint at the TSX, Nesbitt was president and CEO of HSBC Securities Canada, and also spent 10 years at CIBC Wood Gundy.
Woods will be replaced as CFO on January 10 by David Williamson, 47, who was formerly president and CEO of Atlas Cold Storage and CFO of Clarica Life Insurance.
CIBC warned last month of a "large charge", possibly around $2 billion, in its first quarter because of its involvement in the subprime real estate market.
The bank, whose subprime exposure is held through complicated debt instruments such as collateralized debt obligations (CDOs), has already written down more than C$750 million linked to the U.S. real estate market, where loans were made to risky borrowers.
In ejecting top executives because of subprime fallout, CIBC is following in the footsteps of Citigroup Inc (C.N) and Merrill Lynch MER.N, both of which have recently replaced their CEOs.
CIBC, which has the largest exposure by far of any Canadian bank to subprime mortgages, also announced plans on Monday to beef up its board of directors.
The bank said it will nominate Nicholas Le Pan and Robert Steacy for election as members of its board of directors at the company's annual general meeting on February 28.
Le Pan, 56, served as superintendent of financial institutions for Canada from 2001 to 2006. Steacy, 57, is a retired CFO of Canadian book and newspaper publisher Torstar Corp (TSb.TO).
"We consider all these changes to be positive. CIBC needed to bolster its management team following the bank's CDO calamity, and we believe the addition of material "external" bench strength will allow the bank to move beyond its current trials," BMO Capital Markets analyst Ian de Verteuil said in a note to clients.
Shares in CIBC rose as high as C$69.15 on the Toronto Stock Exchange early on Monday, but closed off their highs at C$69.02, up C$1.02, or 1.5 percent. CIBC was the worst performing bank stock in Canada in 2007, losing 28 percent.
Although he said the management shuffle is welcome, Dundee Securities analyst John Aiken sounded a note of caution, noting that CIBC had brought in new management as recently as 2005, when it made a hefty $2.4 billion payment to settle its role in the failure of Enron.
"However, after already cleaning house not too long ago, CIBC must be very careful given that they do not necessarily have the same management depth as some of its peers," Aiken said in a research note.
Analysts said they expected further changes at CIBC World Markets. Genuity Capital Markets analyst Mario Mendonca suggested a sale of the unit is possible.
(Reporting by Nicole Mordant; Editing by Peter Galloway)