I was in Winnipeg yesterday for the annual shareholders meeting of the Canadian Imperial Bank of Commerce. The bank has done pretty well by its shareholders. It posted some good numbers this quarter and, compared to its peers in Canada, its stock has done very nicely. But, as bank CEO John Hunkin said at the meeting, while 2003 should go down in the bank's history as a very good year, it won't. The bank, he said, stumbled when it comes to maintaining its reputation.
I think Hunkin is being kind to himself. CIBC didn't stumble -- it fell flat on its face.
Consider this: In September, CIBC was ordered to pay $52-million (U.S.) to investors who convinced a judge that CIBC tricked them into buying bonds in a cosmetics company even those CIBC new the company was on the verge of collapse. (CIBC is appealing this ruling).
Several weeks later, the bank paid $80-million (U.S.) to settle allegations made by U.S. And Canadian investigators that it aided and abetted the executives who perpetrated the Enron scandal.
As soon as that cheque cleared, CIBC was back in the middle of another scandal. This time it was the mutual fund scandal in the U.S. CIBC is accused of lending $1-billion to the hedge funds which allegedly engaged in the illegal mutual fund trades. Not only that, but New York State Attorney General Eliot Spitzer says he has a memo from a CIBC executive which described to others at the bank how to break the law and engage in this illegal trading! The executive who wrote that memo was fired by the bank in December and now faces 27 counts of grand larceny and fraud. Spitzer isn't done with the CIBC yet and the bank has put aside another $50-million U.S. For fines it will likely have to pay.
Almost unbelievably, Hunkin, in his speech to shareholders, suggested that the ethical breaches that led to these fines was a result of being "encouraged" by shareholders and the media to be aggressive. I suggest it was neither. It was nothing but greedy investment bankers with not enough supervision who got the bank in trouble.
In the press conference after the meeting, Hunkin said that, as CEO, he had to take responsibility for the harm to CIBC's reputation last year. What Hunkin actually took last year wasn't responsibility but a $3.3-million bonus, part of an overall pay packet worth $10.7-million. The guy who actually took responsibility it seems was David Kassie, Hunkin's good friend and number two at the bank. Hunkin fired him a few days after that other exec was charged by Spitzer. So, with all this background, I figured for sure Hunkin or his board would face at least one angry shareholder at the annual meeting. Heavens to bets, I've sat through dozens of annual shareholder meetings in Toronto for companies large and small and, invariably, there's some retired pensioner who gets up and gives it to the CEO for one thing or another. Amazingly, though, not a single person put a question to Hunkin or his board at the shareholders meeting.
And on a completely unrelated note, if you're travelling to Winnipeg I highly recommend the Fairmont Winnipeg. The bank held their meeting there and I stayed overnight there. The prices are very reasonable and the service I had was top-notch. You'll also be surprised at the food. Very nice.