CIBC CEO shrugs off short calls
A pair of recent headline-fetching bearish calls on Canada's banks aren’t fazing the chief executive of Canadian Imperial Bank of Commerce.
"Everyone's entitled to their own opinion. That's what makes a market," said Victor Dodig in an interview with BNN Bloomberg’s Amanda Lang at CIBC's headquarters in Toronto Wednesday. "I don't spend a lot of time thinking about what people say."
While he acknowledged it won't always be smooth sailing in the economy, Dodig insisted his institution is well prepared.
"I think the economy is in a decent spot right now. Not as good as it was, but in a decent spot," Dodig said. "There's a few things to solve out there – whether it's trade agreements [or] pipelines. I think the future for Canada over the short, medium and longer term is generally a positive one. Yeah, sure, we'll see some bumps in the road. But we'll manage through all of that."
New air has been breathed into the case against Canada's largest banks in recent weeks. Veritas Investment Research's Nigel D'Souza broke ranks with Bay Street on March 26 when he came out with sell recommendations on all of the Big Six lenders, based on an expectation credit losses will rise as consumers struggle under the weight of a near-record debt servicing ratio. In an interview with BNN Bloomberg, D'Souza warned bank stocks could fall 20 per this year.
And earlier this week, Steve Eisman, whose infamous bet against the U.S. housing market received Hollywood treatment in The Big Short, spelled out his thesis for betting against Royal Bank of Canada, Laurentian Bank and Dodig's CIBC.
"I don't think there's a Canadian bank CEO that knows what a credit cycle really looks like, and so I just think psychologically they're extremely ill-prepared," Eisman said in an interview with BNN Bloomberg Tuesday. "Given how low the risk weights on their balance sheet are, I think they're unprepared for how much their capital ratios could go down if there's – and I can't emphasize it enough – just a simple normalization of credit."
Both D’Souza and Eisman predicated their arguments on a belief banks will have to raise credit loss provisions, with the latter warning the trend would eventually “crush earnings.” Dodig, however, told BNN Bloomberg CIBC has provisioned “appropriately for the risk we see in our business.”
CIBC is often singled out as the bank with the most exposure to the Canadian housing market, potentially making it particularly vulnerable as formerly red-hot markets cool down amid a string of regulatory changes over the last couple of years. While Dodig acknowledged the credit cycle is at a "mature" point, he gave no indication he's fretting about the quality of his bank's loan book.
"When you talk about credit risk, I don't see any big issues out there," he said. "Sure, we have lent to Canadians for their homes. We feel very comfortable with our portfolio."