We talk to Richard Nesbitt, chairman and chief executive officer of CIBC World Markets, who is responsible for investment and corporate banking, capital markets, the merchant bank and the real estate finance businesses of the Canadian Imperial Bank of Commerce.
You returned to CIBC for a second stint in 2008 after running the Toronto Stock Exchange (TSX) for five years. What prompted this move?
In 2008, in the wake of the credit crisis, CIBC decided to make some management changes and approached me to run the wholesale bank. We had just finished a takeover of the Montreal Exchange, which was the final step in the consolidation of the Canadian stock exchanges. I’d enjoyed my time at TSX but the challenge of running the wholesale operations of CIBC, a bank with which I’d worked for a decade in the early part of my career, drew me back.
How has the credit crisis changed the businesses you run at CIBC?
Many of the activities banks were engaging in [pre-crisis] were proprietary in nature. Now, what I see as central to the business of wholesale banking is providing services to clients. From the perspective of the banks that were engaging in prop trading, things have also changed dramatically. The cost of funding positions has increased dramatically and regulators have clamped down in some countries.
We are moving back to a business model similar to one which I was familiar with in the early part of my career but with some key differences. Technology has been one change – it has altered the way some services are offered. Plain vanilla trades have moved to a technology-driven platform and the traditional agency equity business has become less and less lucrative.
But banks argue that a certain amount of position-taking is necessary to provide services to clients?
And I don’t disagree with that. Banks have been doing principal businesses for decades and will continue to do so. Bond trading is a good example – we buy bonds not to build positions but to enable us to make a bid-offer spread and thus provide clients with a service they seek.
Picking up on that theme, what are your views on the Volcker Rule [a proposal by American economist and former US Federal Reserve chairman Paul Volcker to restrict US banks from proprietary trading]? How will it affect the ability of US banks to stay competitive?
Regulators world over are moving towards legislation that hinders deposit-taking banks from taking proprietary positions, so I expect the UK and Canada to follow suit with some version of the legislation which is ultimately passed in the US. This is a natural corollary to the fact that deposit-taking banks have some government insurance.
At CIBC we fund our wholesale banking activities completely independently of the retail bank deposits.
What is the global strategy of CIBC wholesale banking?
Our stated mission is to bring Canadian capital markets products to the world and bring products from the world back to Canada. Also, we want to be among the top three banks in Canada in everything we do.
Canada is a very outward-looking country. For example, our sovereign wealth funds have been early to invest outside Canada. We provide them with services to facilitate this.
We have a strong bias towards businesses in mining and energy, a natural offshoot of the fact that more than half of the market capitalisation of the TSX is companies in these businesses. It is unusual for us to be acting in situations where there is no Canada connection.
What does CIBC do in Asia?
There are three key elements of our business in Asia. The first is private wealth management -- we have booking centres in Hong Kong and Singapore and have been in the region for over 15 years, providing clients with Canadian-focused investments in global markets.
On the investment banking side we represent clients in the oil and gas and mining sectors – our mandates on hand are largely M&A or capital-raising. And our capital markets business, including sales and trading, enables us to originate and distribute.
CIBC wholesale banking has 52 fulltime employees in Asia.
How is a Hong Kong presence a competitive advantage for you?
Hong Kong is a unique centre for CIBC. Estimates suggest that in Hong Kong there are 250,000 Canadian citizens and a number of them are owners of or investors in Canadian businesses. This is a tremendous competitive advantage and makes our ability to do business easier. For example, one of Canada’s largest oil and gas companies, Husky Energy, is majority owned by Li Ka-shing. They are one of our major clients and the reason we sit in this building! [I interview Nesbitt in CIBC’s Cheung Kong Centre office]. On the retail side, we enable our customers to bank between Hong Kong and Canada.
This is part of an interview exclusively granted to FinanceAsia. To read the full version, please see the upcoming December/January issue of FinanceAsia magazine, which will be published in mid-December.