VANCOUVER, British Columbia , Dec 6 (Reuters) - Canadian Imperial Bank of Commerce (CM.TO) did not anticipate the swift decline in the U.S. subprime mortgage market, leaving it with an uncomfortably large exposure, the bank’s chief executive said on Thursday.
“In our risk assessment, we underestimated the extent to which the subprime market might deteriorate and the degree to which that would impact securities that were structured to be very low risk,” CIBC Chief Executive Gerry McCaughey said.
“This, coupled with an over-dependence on the extremely high ratings of these securities, resulted in the build-up of exposures that are too large for CIBC’s risk appetite,” McCaughey said on a conference call.
His remarks come after CIBC, Canada’s fifth-biggest bank, revealed it had C$9.3 billion ($9.2 billion) worth of hedged exposure to the subprime market, where defaults are rising after loans were made to customers with poor credit records.
CIBC had taken several steps to mitigate future losses from its subprime exposure, McCaughey said.
These include halting new business activities in the area of structured credit, putting hedges against its unhedged positions and changing the leadership of its debt capital markets business.
The bank’s structured credit business will now be directly managed by Brian Shaw, chairman and chief executive of CIBC World Markets.
The bank was also focusing on bolstering its capital levels, McCaughey said.
“Our focus in building capital strength means that it is unlikely that we will be active on share buybacks in the first quarter,” he said.
$1=$1.01 Canadian Reporting by Nicole Mordant; Editing by Rob Wilson