Canadian Giant in Big Move toward Investment Banking
Kraus, James R., American Banker
Highlighting a push by commercial banks into capital-markets activities, Canadian Imperial Bank of Commerces is transforming itself into an investment bank.
The basnk, Canada's second largest, announcd a sweeping realignment on Wednesday that will give its investment banking business preeminence over traditional commercial banking. The changes will be extended to Canadian Imperial's operations in the Unites States, where the bank is a major player in the corporate lending market.
Though other large commercial banks have expanded their capital markets and trading operations in recent years, none has done so as suddenly or as massively as Canadian Imperial.
The Toronto-based bank plans to markedly increase structuring and trading derivatives and other financial instruments. In addition, it will step up its asset securitization and underwriting activities. Finally, the bank will consolidate its corporate and invesment banking management in New York.
"Our clients are taking us into the capital markets," Allwyn W. Keiser, executive vice president and head of the bank's U.S. operations said in a telephone interview from Toronto. "It's either join the parade or watch it go by."
Follows Big U.S. Players
In embracing investment banking, Canadian Imperial is following such U.S. powerhouses as J.P. Morgan & Co. and Bankers Trust New York Corp.
And it is by no means the only foreign bank deploying the strategy in the Unites States. Bank of Nova Scotia and Deustche Bank, for example, have gained powers to underwrites both debt and equity in the Unites States.
The United States and Canada are among the few countries that, until recently, did not allow commercial banks to engage in investment banking.
The barriers seriously handicapped banks in both countries as their most creditworthy borrowers began raising money on securities markets rather than taking out loans.
However, U.S. regulators have been steadily allowing banks to move into investment banking through loopholes in U.S. banking legislation.
Canada has gone even further. It has allowed banks to own investment banking subsidiaries since 1986.
As a result, U.S., Canadian, and foreign banks in the United States have been slowly expanding into investment banking and trading for more than a decade. Bankers find investment banking more attractive than commercial banking because it requires less capital and brings in large income from fees.
Morgan and Bankers Trust began turning heavily in investment banking in the early 1980s. Since then, foreign banks in the United States have followed suit, mainly by obtaining so-called Section 20 powers that allows tham to underwrite corporate debt.
Rising Demand Cited
Canadian Imperial with assets of $105 billion, is a major corporate lender in the United States, specializing in loans to media, telecommunications, oil, gas, and utilities companies. …