John Greenwood
Other
The head of Canadian Imperial Bank of Commerce’s retail banking operation says he’s “comfortable” with the bank’s business mix despite continuing rapid growth of the consumer mortgage portfolio.
“In our own branded mortgage space we are now growing faster than anyone,” said David Williamson.
All the big banks have been aggressively pursuing the consumer loan business, especially mortgages, so CIBC is hardly alone on that front. But a key reason Canada’s fifth biggest bank by assets is confident the issue won’t come back to haunt it is that CIBC has worked hard to cut its exposure to potential losses.
“We’ve got the vast majority of our mortgages insured with the government of Canada,” Mr. Williamson said in an interview with the Financial Post, referring to coverage provided by the Canada Mortgage and Housing Corp. “Probably more than other banks.”
With all the businesses we are in “we look at the longer term view, and I’m really quite comfortable with our business mix,” he added.
Many analysts worry that soaring consumer debt levels could hurt the banks in the event of a sudden rise in unemployment or interest rates. The concern is that it could set off a wave of defaults that, given the precarious state of household finances, would reverberate through the economy.
The banks have largely insulated themselves through the use of CMHC insurance, with average coverage of their mortgage portfolios of more than 60%.
That means lenders would be mostly protected from the direct impact of any downturn but even so, in such an event they would still experience a slowdown in their other consumer businesses.
Mr. Williamson made the comments at the launch of a credit card that holds centre stage in CIBC’s strategy to remain a leader in the travel rewards space.
The launch of the CIBC Aventura credit card comes two weeks after CIBC agreed to carve up its Aeroplan business with Toronto-Dominion Bank.
Under the deal, about half of the roughly
one million holders of CIBC’s Aeroplan will be migrated to rival TD, which becomes the first new issuer of Aeroplan cards in two decades.
Unlike Aeroplan which focused on Air Canada, the new Aventura card will allow customers to accumulate frequent flier points to buy tickets on any airline.
Aventura also includes various travel and medical insurance benefits which are superior to most other cards, Mr. Williamson said.
Those enhancements make it one of the best travel rewards cards available, he said. “You put our [card] up against any other offer, it will show very well.”
More than 20 years ago CIBC launched its first Aeroplan card – the program owned and managed by Aimia Inc. of Montreal – setting the stage for what is one of the most profitable businesses in retail banking.
“It’s a dynamite business,” said National Bank Financial analyst Peter Routledge.
According to Mr. Routledge, the Aeroplan card holders tend to be well-off, often spending a good chunk of their disposable income using the card, and CIBC and Aimia collect about 2.5% of every dollar spent.
The travel rewards business has change dramatically since CIBC became an issuer and the market is now crowded. Still, the rewards are there for astute operators.
“It’s got good margins and we are continuing to grow in this space,” Mr. Williamson said.
© 2013 National Post
