MONTREAL - CIBC says it is eyeing big-ticket acquisitions in the United States as the Toronto-based bank seeks to boost earnings from wealth management to about 15 per cent of overall adjusted profits.
The bank's retail brokerage, asset management and private wealth management businesses generated $392 million in adjusted earnings last year, or 11 per cent of the bank's total adjusted profits.
Prior to the purchases of American Century Investments and Atlantic Trust for a combined $1 billion, the bank earned nine per cent from this segment.
Chief executive Gerry McCaughey said the bank (TSX:CM) doesn't have to achieve its objective with just one large transaction and refused to comment on published reports that it is in the final running to purchase U.S. money manager Russell Investments for as much as US$3 billion.
"The major objective is to get there steadily and on a safe and sound basis where we add value to CIBC shareholders," he said in an interview Thursday after announcing at the bank's annual meeting that he will retire in two years.
Although the bank has a preference to buy within the Canadian market place, limited opportunities have forced it to look south of the border, he added.
McCaughey said it could make an acquisition exceeding $1 billion but wouldn't say if there is an upper limit, nor any time frame to reach its goal.
Laurence Booth, finance professor at the University of Toronto's Rotman School of Management, said managing the portfolios of wealthy investors is a stable business that fits into the bank's strategy to lower its risk profile.
"Perhaps they've decided they've de-risked the bank enough that, at this stage in the business cycle, it's more important to get into some more wealth management business," he said from Toronto.
The bank had invested heavily in U.S. investment banking, but extracted itself after being burned by Enron metldown and the sub-prime mortgage scandal.
"It's sort of like back to the future," Booth said of CIBC's growing interest in the U.S.
Earlier, McCaughey told shareholders that its strategic investments in McLean Budden, American Century and Atlantic Trust, which alone manages US$24 billion in assets â€” are aligned with its risk appetite.
"(They) are indicative of the type of investments we will look to make in the future."
McCaughey, who has been CIBC's president and chief executive since August 2005, said he plans to retire effective April 30, 2016, when he will be 60 years old.
He becomes the fourth CEO from Canada's Big Five banks in the past year to announce his retirement, following Gordon Nixon of Royal Bank (TSX:RY), Rick Waugh of ScotiaBank (TSX:BNS) and Ed Clark of TD (TSX:TD).
His time at the head of CIBC, one of Canada's biggest banks, has been a period of relative stability compared with the tumultuous period preceding McCaughey's promotion to the top job. Under McCaughey, CIBC focused on its core businesses â€” exiting some of the areas that had been volatile during a boom and bust period that included the dot-com and Enron meltdowns.
Recently, McCaughey helped CIBC navigate through a potentially difficult situation with the bank's Aeroplan credit card business â€” a long-standing and historically profitable relationship with Air Canada's loyalty points system.
"He successfully led CIBC through the worst financial crisis since the Great Depression, instituted a risk management culture that we continue to build on every day," chairman Charles Sirois told shareholders.
McCaughey said the bank has made substantial progress over the past nine years in reducing its risk and strengthening its foundations. But he said it's the right time to transition to a new leader because the next phase of its strategy will take longer than two years.
All Canadian banks have similar processes to replace top executives and McCaughey said he doesn't believe the industry will be negatively impacted by the departure of a large number of CEOs.
"I think there's stability around strategic process throughout the Canadian industry," he said.
The Canadian Bankers Association said the country's banks will continue to be well managed, which has allowed them to be rated the soundest in the world for six consecutive years by the World Economic Forum.
"Banks have a depth of solid leadership that has served both their customers and their shareholders well and will continue to do so into the future," it said in an email.
Booth said the close oversight by regulators and the federal government doesn't give banks much leeway for dramatic changes in strategy.
"There's nothing I think on the horizon at the moment that would indicate some substantial change in strategy by any of the banks so it's not clear there's a problem that needs to be solved."
The retirement also doesn't appear to have raised concern among investors as the bank's shares gained 16 cents to $95.81 Thursday on the Toronto Stock Exchange.
Follow @RossMarowits on Twitter.