BUSINESS

TURMOIL AT THE TOP

AN ABRUPT DEPARTURE AT CIBC SIGNALLED A MAJOR CHANGE AT THE COUNTRY'S NUMBER 2 BANK

BRENDA DALGLISH January 7 1991
BUSINESS

TURMOIL AT THE TOP

AN ABRUPT DEPARTURE AT CIBC SIGNALLED A MAJOR CHANGE AT THE COUNTRY'S NUMBER 2 BANK

BRENDA DALGLISH January 7 1991

TURMOIL AT THE TOP

BUSINESS

AN ABRUPT DEPARTURE AT CIBC SIGNALLED A MAJOR CHANGE AT THE COUNTRY'S NUMBER 2 BANK

On a frosty evening five days before Christmas, Warren Moysey was the guest of honor at a dinner in a woodpanelled dining room at the headquarters of the Canadian Imperial Bank of Commerce in downtown Toronto. Despite the elegance of the surroundings, the atmosphere was strained. Six weeks earlier, Moysey, 51, had stepped down as president of the ClBC’s retail operations, blaming his sudden departure on what he called a “philosophical disagreement” with the bank’s hard-nosed chairman, Donald Fullerton. At the dinner, Fullerton was playing host to Moysey and 24 of the bank’s senior executives. When the dinner ended, Moysey thanked his 59-year-old former boss for his hospitality. But in a pointed reference to his own resignation, he also cautioned his former colleagues about “the breakdown of trust” that can take place in an organization when long-serving employees lose their jobs.

Even now, Moysey refuses to discuss publicly the reasons for his abrupt departure from one of the most senior positions in the Canadian banking industry. But there is little doubt that his resignation signals a period of upheaval at the CIBC, which under Fullerton’s leadership has firmly established itself as the country’s second-largest bank. In the past year, Fullerton has twice sent letters to the bank’s middle and senior managers criticizing their performance and accusing them of complacency in the face of increased competition from other banks and trust companies. In an interview, Fullerton declined to say whether his current drive to overhaul the ClBC’s management was a factor behind the sudden departure of Moysey, with whom he had worked closely for 20 years. But he added: "We’re trying to professionalize our management. Cultural changes are always difficult in large institutions.”

In fact, some bank analysts speculate that

Fullerton may have been dissatisfied with Moysey’s efforts to improve the performance of the ClBC’s consumer banking operations. As president of the retail division since 1986, Moysey was responsible for the bank’s network of 1,527 domestic branches and 1,914 automated teller machines, as well as its portfolio of personal loans and mortgages. In the bank’s financial year that ended Oct. 31, the CIBC set aside $174 million to cover losses on unpaid consumer loans and residential mortgages. By contrast, the country’s largest financial institution, the Royal Bank of Canada, set aside only $118 million for consumer and mortgage loan losses in that period. “It is the one area that I’m not proud of in the last year,” Moysey said. He added: “It was a problem area. It was the

subject of a lot of internal discussion. But it didn’t seem to be a showstopper.”

Another concern for CIBC executives was that the consumer banking division had failed to achieve its stated target for growth. In 1989, Moysey said, the bank’s senior officials set out to become what they described as Canada’s “number 1 financial retailer” by 1991. Currently, the Royal Bank is the country’s largest bank, followed by the CIBC, the Bank of Montreal, the Bank of Nova Scotia and the Toronto-Dominion Bank. Moysey said that he sent a letter to all CIBC employees last September telling them that the bank’s research indicated that it had overtaken the Royal in terms of customer satisfaction. But the letter added that the Royal still had a larger share of total personal bank deposits—and that there was no way that the CIBC could close the gap by the end of 1991.

Fullerton has declined to say whether he was impatient with the pace of growth during Moysey’s term as president of the bank’s retail operations. But the CIBC chairman has made clear his intention to retire from the bank in 1992 or 1993. Said Moysey: “If I were in that position and thinking I was going to retire in the next one, two or three years, I’d probably want to see everything perfect. Maybe that’s his objective.”

For his part, Fullerton told Maclean’s that he was pleased by the bank’s recent performance. He added that he recognized the dangers involved in trying to expand too rapidly. Among other things, a bank that aggressively attempts to increase its portfolio of consumer and mortgage loans runs the risk of making too many bad loans. “Volume-driven activity is not the policy of the bank,” Fullerton said, “and we don’t intend to make it the policy of the bank.” He added that the bank’s traditionally cautious approach to lending was one of the reasons why it was able to report record profits of $802 million in the 1989-1990 fiscal year. “No banker will ever be satisfied as long as they have any loan losses on their books,” Fullerton said. “But,” he added, “we have been very conservative in accounting for problem loans and we are not encountering surprises today.” Indeed, one senior CIBC official said privately that Fullerton’s approach appeared to be more cautious than Moysey’s had been. Said the executive, who requested that he not be identified: “Fullerton has been warning people for two years that the recession was coming and to make sure that the bank had clean portfolios.”

At the same time, Fullerton is clearly determined to strengthen the bank’s management. In February, he sent a memorandum to the bank’s senior and middle managers in which he urged them to be tougher in their employee evaluations. “There is no way that CIBC can survive, let alone prosper,” the letter said, “if we allow even one of our personnel to be unchallenged in our pursuit of providing value to our customers.” Fullerton also complained about “middle-management mush” and said that the bank’s employees were too often managed in a “country club” fashion.

Fullerton acknowledged in the interview that his sternly worded directives had created “some discomfort” among the bank’s 49,300 fulland part-time employees. But he said that his objective was to improve the ClBC’s operations by ensuring that staff members received honest appraisals of their performance. “It is not being critical of management,” he said. “It is being critical of people who impede management. Anybody who interferes with that process is holding us back.” Fullerton added that, in the past, some managers were reluctant to deal openly with problems in the areas under their supervision. “They would avoid giving any sort of honest appraisal and merely say that everything was going perfectly. We are dealing with the types of people who caused management policy not to flow through or employee suggestions not to flow up.”

Although CIBC officials deny that a major reorganization of the bank’s retail division is taking place, Moysey was not the only senior banker to leave the company. Less than one month later, John Myers, the executive vicepresident of ClBC’s retail arm, announced that he, too, was resigning. Fullerton said that

To achieve the bank’s goal of becoming Canada’s leading financial retailer, Kluge will likely have to increase the number of CIBC branches and automated banking machines across the country. At the same time, Kluge will have to repair the uncertainty created by Moysey’s abrupt departure. “There is no friction,” Fullerton insisted. “As far as I am concerned, Moysey is a good friend of mine and will continue to be so.” Clearly, though, Fullerton’s drive to improve the ClBC’s performance has sent tremors through the ranks of the country’s second-largest bank.

BRENDA DALGLISH

Myers left the bank because he was disappointed that he had not been chosen as Moysey’s successor. Instead, the job went to 48-year-old Holger Kluge, who previously ran the bank’s international operations.