Canada House of the Year

Last year CIBC worked on creating firsts for the market; providing better clarity for its clients and taking advantage of changes in the market to develop new types of structures.

Investors have become wary of long tenors following the banking crisis, and CIBC has responded by issuing notes with maturities of three to five years – rather than the six- to eight-year principal-protected notes that were previously issued – and introducing principal-at-risk structures to the market.

“No one wants to go longer than five years these days,” says Bill Bamber, managing director and head of structuring at CIBC World Markets. “To take advantage of low rates and high volatility we started to issue principal-at-risk notes and that is gaining traction because you can get shorter tenors.

“The biggest thing that we have tried to change here is that this market was characterised by repeats of the same structure, for example principal-protected notes. The local acronym is TPYG, basically they are type equities, capped at an annual return of about 10%, we do it, and everyone else does it. We are introducing a whole suite of new products that are just different. In 2009, we introduced principal-at-risk, which was the first order of business to benefit the end investor.”

Its series of one-year Clear notes – which are similar to the UK super-trackers – based on the S&P/TSX 60 Index, offer 200-250% participation in the returns of the index, with a cap on returns at 20–22%. For many Canada-based private wealth advisers, this was their first exposure to principal-at-risk strategies, according to the bank. Reducing the tenor also enabled CIBC to reduce the fees, as well as produce products with a higher rate of participation. “Canada has been characterised by relatively high fee structures. The aim is to deliver better performance on an after-fee basis, that is a big growth area for the future.”

The Enhanced Return Note tied to the TSX60 Index sold C$80 million (US$80 million), between CIBC and Barclays, who issued the note as part of a new partnership with Barclays as issuer and CIBC providing the hedging.

Bamber rejoined CIBC after a stint in the US, and on his return he pushed to get the documentation changed. “The interesting thing that I found, having worked in the US and returning, is that issuance from the majority of Canadian banks is done off the offering memorandum platform,” explains Bamber. “If it is just one issuance, you do not have to do a prospectus if it is a Schedule One Canadian bank (ie. a domestic bank) and it is a principal-protected note. If it is principal-at-risk note, you do not have to do a prospectus if the investor signs a subscription agreement.

“In the US, everything has to be prospectus-based and they have moved to plain language. That has not happened here yet and I found that, in general, the level of disclosure was not best of breed, so I pushed to have that upgraded with risk disclosure and plain language,” says Bamber.

He adds that one of the criticisms of structured products is their opaqueness and this is another reason for revamping product literature. Off the back of this change, CIBC has been able to do more deals. Bamber named Wood Gundy (a division of CIBC Capital Markets that operates open-architecture) and HSBC as two of the partners that have appreciated the changes it has made.

Trevor Nelson, an adviser at Victoria, British Columbia-based IPC Securities does a lot of work with CIBC, in part because of the level of information that he is able to access through the bank’s publications. “The documentation has lots of disclosure. Mostly I work with CIBC because the reporting systems are great. I can go on the website, key in the note number and get performance reports on a daily basis.”

This ability to track performance, which is valued by clients, has been enhanced through CIBC’s structured product index, which was built at the start of 2010. CIBC plans to make it available on Bloomberg this month.

Despite the past couple of years being a challenging time for issuers as advisers and investors started to look elsewhere to see where they could find good deals, CIBC has maintained good relationships with its customers. “Wherever the best deal is, that is where I will go,” explains Terry Wong, an adviser at HSBC in Vancouver. “I do a lot of stuff with CIBC. I have a good relationship with them and I know that if I need anything they will build it. Relationships take a little while, which is why I continue to use someone that I already know. I think they are better than our in-house people because we do more with CIBC on a regular basis.”

CIBC’s next step for the coming year is to work on being the first
to offer dynamic strategies to the Canadian market. Bamber is sure this is a high-growth area as investors look for better returns and lower fees.