Imagine if Hunkin had been able to print Canadian Tire money...

John Hunkin was desperate. After five years at the helm of CIBC, share performance and profitability were mediocre. He invented a plan: The bank would slip some Canadian Tire money into each of its cash machines…At least Mr. Hunkin is using delightful PR disasters to keep us entertained as time at the top expires.

The Globe and Mail
December 3, 2004~

Imagine if Hunkin had been able to print Canadian Tire money…
Eric Reguly

John Hunkin was desperate. After five years at the helm of CIBC, share performance and profitability were mediocre. He invented a plan: The bank would slip some Canadian Tire money into each of its cash machines.

"No one'll notice," he told his top managers, struck dumb by the Hunkster's brilliance. "Those babies feel like real money. All we gotta do is pawn off one per $100 withdrawal and we're talking hundreds of millions in gravy. Do the math, meatheads."

New Brunswick was picked for the test run. It worked. That was several months ago. A national phony bill rollout was quietly planned. Everything was fine until this week, when the cashier at a Miramichi Poulet-Take-Away shop burst into laughter as he took a customer's money.

"Damn," the bank boss said when he learned Operation Bonus Ramp's cover had been blown. "But don't worry, lads. We've still got that hillbilly scrap dealer buying our customers' credit info, right? No? Christ, where's Kassie when I need him."

Indeed, John Hunkin has not had a great year. The latest misfortune came this week with the mix-up of Canadian Tire money with actual cash in CIBC's bank machines. It would be more than a stretch to connect Mr. Hunkin to that problem, but shareholders have found plenty else to blame him for. Yesterday, it became apparent he was on his way out. Gerry McCaughey is to become CIBC's president, a title held by Mr. Hunkin, and heir apparent. Mr. Hunkin is still No. 1, but none of the bank's profit centres report directly to him; Mr. McCaughey gets that honour. In effect, Mr. Hunkin is more governor-general than CEO. Bank insiders say Mr. Hunkin will leave next year.

Mr. Hunkin would probably like to forget 2002 and 2003 as well as 2004. A year or so after taking massive writedowns on the U.S. business, 2003 was capped by the $80-million (U.S.) Enron settlement with the U.S. Department of Justice, in which the bank accepted responsibility for the "criminal conduct" of its employees. The Amicus electronic bank in the United States was shuttered.

Then the bank emerged as a player in the U.S. mutual funds trading scandal. Last February, David Kassie, then the head of CIBC World Markets, left the bank, apparently taking the fall for the ailing foray south of the border. This year was capped off by the scrap dealer and Canadian Tire money incidents.

It's not as bad as it looks.

Say what you want about Mr. Hunkin, but the best measure of a CEO's reign is share performance. On this front, he's no embarrassment. Since he was anointed in mid-1999, the bank's total return, including dividends, has been an average of 17.7 per cent a year. That puts CIBC third among the Big Five (Scotiabank is on top, at 20.4 per cent). But CIBC is so close to second-ranked Bank of Montreal (17.9 per cent) that the difference hardly matters. So let's say CIBC is tied for second spot. Not bad. Royal Bank came in fourth at 16.2 per cent. TD Bank was last at 10 per cent. It must give Mr. Hunkin enormous satisfaction that CIBC has outperformed RBC, formerly the bank that could do no wrong. On the negative headline count, RBC CEO Gord Nixon is more than pulling his weight.

True, Mr. Hunkin made mistakes, lots of them, and the scrap-dealer fiasco proves he hasn't lost the passion. But when he realizes he has made a mistake, he tries to reverse it quickly to minimize the damage.

You could argue, for example, that the U.S. Amicus experiment, which allowed you to do your banking while you bought your supermarket lettuce, should never have been started, or should have been yanked earlier. But at least CIBC got out of the game, taking a $375-million (Canadian) charge against the unit in 2002. Pride or denial could have been employed to extend an experiment to an even more gruesome conclusion.

A better example is the expensive foray in the U.S. wholesale markets. There was a time when CIBC had ambitions of competing with the Goldman Sachs and J.P. Morgans of the world. The effort didn't work and the results were clearly evident in the sagging stock price, which went from more than $55 to $35 in 2002. That's about the time Mr. Hunkin opted for a wholesale retreat from the U.S. wholesale business.

The decision was sound. Since then, CIBC's share price has doubled and Mr. Hunkin went from chump to champ, sort of. At minimum, it bought him another couple of years in the CEO's office. CIBC is now focusing on its domestic retail bank, where the returns on equity are good. The problem, of course, is that the domestic bank has nowhere to grow and every executive loves to present a growth story to his shareholders.

Mr. Hunkin hasn't been able to invent a new growth story. That will soon be Gerry McCaughey's problem. At least Mr. Hunkin is using delightful PR disasters to keep us entertained as time at the top expires.


Brought to you by WikidFranchise.org

Risks: Canadian Imperial Bank of Canada, CIBC, Royal Bank of Canada, RBC, Banks, Enron-like scandals, Competence, Canada, 20041203 Imagine if

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License