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U.S. regional banking troubles only in 'early innings': CIBC CEO

"Having said that, you keep your antenna up and see how the baseball game evolves here."

A sign for the The Canadian Imperial Bank of Commerce (CIBC)  in Toronto, Ontario, Canada December 13, 2021.  REUTERS/Carlos Osorio
CIBC's chief executive says he prefers to focus on organic growth rather than hunt for possible acquisitions in the tumultuous U.S. regional bank sector at this time. REUTERS/Carlos Osorio

The U.S. regional banking crisis has only just begun, according to the head of one of Canada's largest lenders.

"I think the disruption in the U.S. banking market is in its early innings. ... You realize that the game will last nine innings. This is probably the third inning," Victor Dodig, chief executive officer of Canadian Imperial Bank of Commerce (CM.TO) (CM), told analysts on the company's second-quarter earnings conference call on Thursday.

It's one of the main reasons the lender is opting to remain on the bench instead of hunting for potential regional bank acquisitions south of the border.

"Our focus continues to be on organic growth across our franchise. ... We've made significant investments in our business. Our entire management team is shifting to harvesting those investments," Dodig said.

"Having said that, you keep your antenna up and see how the baseball game evolves here."

However, it appears that antenna briefly tingled following the collapse of California-based Silicon Valley Bank (SVB) in March.

The Federal Deposit Insurance Corporation revealed CIBC was one of two major Canadian banks, along with Bank of Nova Scotia (BNS.TO) (BNS), that submitted bids for all or parts of SVB.

When asked about the bid on the conference call, Dodig wouldn't provide specifics.

"Anything we do has to be accretive to capital in a short period of time. That's how we think about things. So the most accretive way to build capital is to invest organically right now," he said.

Investor weariness over U.S. regional banks

While the turmoil in the U.S. regional lender sector could be viewed as an opportunity to scoop up a smaller player at a discount, some investors and analysts are still nervous about the uncertainty plaguing the industry.

Those nerves were on display when Toronto-Dominion Bank (TD.TO) (TD) was working through its proposed takeover of First Horizon (FHN). The deal was ultimately terminated in early May.

Many analysts hailed it as a net positive at the time, saying it eliminated risks that could emerge from additional exposure to the tumultuous U.S. bank sector.

Meanwhile, Bank of Montreal (BMO.TO) (BMO), which is fresh off closing its acquisition of Bank of the West, saw a "solid contribution" to its second-quarter earnings, according to Barclays analyst John Aiken on Wednesday.

Another analyst also noted Bank of the West's contribution to BMO's earnings and loan book, but acknowledged the additional uncertainty.

"U.S. banking trends remain negatively skewed, and with results being more sensitive to the economic cycle, management commented that they are also seeing slower loan growth in the U.S. segment," CIBC analyst Paul Holden wrote in a note on Wednesday.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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