All Business

FATE’S FAVOURITE FALL GUY

John Hunkin’s penchant for risk has brought CIBC nothing but pain

STEVE MAICH December 20 2004
All Business

FATE’S FAVOURITE FALL GUY

John Hunkin’s penchant for risk has brought CIBC nothing but pain

STEVE MAICH December 20 2004

FATE’S FAVOURITE FALL GUY

All Business

STEVE MAICH

John Hunkin’s penchant for risk has brought CIBC nothing but pain

IF LIFE WERE FAIR, John Hunkin would be beginning his victory lap now, soaking in the accolades and admiration of his colleagues. Under normal circumstances, the 59-year-old chief executive of Canadian Imperial Bank of Commerce would have the next 12 months or so to focus on preparing his hand-picked successor to take over the reins. And if the fates had been kinder, he would be able to take pride in the knowledge that he’ll be remembered as a CEO who led the bank to record profits, made it a bona fide player on Wall Street, and more than doubled its share price, outperforming bigger rivals Royal Bank

of Canada and Toronto Dominion Bank.

But life isn’t fair. CIBC’s circumstances aren’t normal. And fate has a nasty sense of humour, especially in regard to John Hunkin.

With the recent appointment of Gerry AVIcCaughey as his No. 2 and heir apparent, Hunkin has cleared up the often messy issue of succession and started the unofficial countdown to his departure. But rather than spending the final days of his tenure securing his legacy at the proud institution, he’ll be trying instead to erase a stain from it.

Despite his many accomplishments, Hunkin has spent much of the past three years apologizing and fending off critics rather than building CIBC’s business. Whether it was bad luck, bad judgment or bad timing, the result was the same: if you hid a needle in a thousand haystacks, Hunkin would not only find it, he’d manage to stab himself with it.

The disappointment of Hunkin’s tenure is only deepened by the high hopes he carried into the job. He rose through the ranks of CIBC’s investment banking arm and, in 1999, won a fierce competition for the CEO post. At the time, he was still basking in the glory of the bank’s blockbuster deal with Global Crossing—one of the red-hot telecoms of the late 1990s. CIBC had invested US$41 million in the carrier, becoming banker and adviser to the firm, and parlayed that into a US$1.7-billion payday. More importantly, the deal announced to the world that CIBC could hold its own on Wall Street with names like Goldman Sachs and Salomon Smith Barney.

Hunkin planned to use World Markets, the

brokerage and investment bank he’d helped build, as a springboard into the U.S., led by his ace deal maker, David Kassie. The first major sign of trouble came in 2002, when Global Crossing collapsed amid allegations of improper accounting. CIBC was never implicated in any wrongdoing, but was left holding $207 million in bad loans. The bank’s greatest coup had become an embarrassment, and it wouldn’t be the last.

Right around the time Global Crossing was foundering, a Houston energy company by the name of Enron began its slide into oblivion. Soon the name would become synonymous with corporate sleaze, and CIBC’s would be dragged into the swamp with it. Enron bankruptcy investigators alleged CIBC was one of several banks that helped

structure some of the shady transactions which led to the energy dealer’s death spiral. The bank paid $80 million to settle charges related to the Enron fraud, and this month set aside another $300 million to deal with further legal claims. But dollar figures can’t begin to reflect the humiliating toll on the institution’s precious image.

Every time a company blew up—Enron, Global Crossing, Adelphia, Teleglobe—it seemed CIBC was in the path of the shrapnel, and loan losses mounted. To complicate matters, in the midst of all this turmoil the market soured. Trading slowed, stock

WHETHER bad luck or bad judgment, the result is the same: if you hid a needle in a thousand haystacks, Hunkin would not only find it, he’d manage to stab himself with it

offerings were shelved, and the bank pulled the plug on Amicus—its electronic banking business—after racking up $700 million in losses. In 2002, CIBC reported its worst results in a decade. To atone, Hunkin and Kassie gave up their annual bonuses.

The following year, CIBC got tangled in yet another controversy: one of its bankers was accused of facilitating illegal trading in U.S. mutual funds. By then it was impossible not to wonder about the culture of ethics at CIBC. Did trouble follow the bank around, or did Hunkin’s team court it?

To his credit, last year Hunkin stood before shareholders and accepted the blame. Flamboyance had failed him, and he promised to retrench. He fired David Kassie and promised to reduce the bank’s exposure to risky investments. But even in safety he stumbled. CTV News revealed recently that CIBC had unwittingly been faxing confidential bank records to a West Virginia scrapyard for years. Adding insult to injury, CIBC’s fourth-quarter profit fell 14 per cent. Less than a year after his last mea culpa, Hunkin was back to apologizing.

Fresh off his latest pratfall, Hunkin introduced McCaughey as the CEO-in-waiting. The new guy is dull enough to reassure investors tired of CIBC’s antics, but Hunkin’s own legacy is in tatters. Yet none of that should come as a shock to anyone. He courted risk and vowed boldness, and he delivered both. But rather than vaulting CIBC to the top, he’s become a reminder of why Canadian banks favour careful, conservative CEOs over brash deal makers.

The betting is that Hunkin has got a year, or less, left in the job. Despite the strong share price, it’s clear he won’t be riding gracefully into the sunset of his career. The best he can do now is slip out discreetly through the side exit and hope that history will be kinder than fate has been. lüil

Read Steve Maich’s weblog, “All Business,” at www.macleans.ca/allbusiness