The credit crisis has been hanging over the financial services industry like a black cloud since it broke last summer. Small wonder, then, that some advisors — particularly those at Toronto-based CIBC Wood Gundy — have had to reassure their clients that the sky isn’t falling.
“I am answering questions from clients that I never had to face before,” says a Wood Gundy advisor in Ontario.
Adds a colleague: “CIBC is always in the news for bad reasons. Clients want to discuss it — and we don’t have answers.”
Of the Big Six banks, CIBC was hardest hit by the global credit crisis fallout, which was sparked this past August by the collapse of the subprime mortgage market in the U.S. So far, the bank has booked $4.2 billion in writedowns related to subprime mortgages; it recently acknowledged exposure to $25 billion in non-subprime securities backed by monoline bond insurers.
Wood Gundy advisors reacted. Those surveyed for Investment Executive’s 2008 Report Card gave the firm a 5.3 score in public image, down a whopping 2.4 from 7.7 last year, and a 7.1 in stability, down 1.3 from 8.4 in 2007. Scores for strategic focus and corporate culture were also down by more than 1.5 points from the previous year.
Wood Gundy advisors say that although most clients understand that the brokerage is a separate arm of the bank, clients remain nervous about Wood Gundy’s future. “By association,” says an advisor in British Columbia, “we are tarnished with the poor reputation of CIBC.”
Other advisors with the brokerage express resentment of the bank’s leadership and its poor risk-management decisions. For its part, CIBC says that client concern is to be expected when there is a global crisis. “This is a broad issue affecting many financial institutions around the world,” says Rob McLeod, CIBC’s senior director of communications. “So, it is not surprising that it would prompt some questions from clients. As a normal course, we provide our advi-sors with information to help them talk to clients about a variety of subjects that may be raised in discussions with our staff.”
However, some Wood Gundy advisors did not share their colleagues’ concern about the parent bank’s tarnished public image. “Fewer than 1% [of my clients] ask about current issues,” says a Wood Gundy advisor in Ontario.
Adds another in Alberta: “It’s a solid organization, regardless of current issues.”
CIBC isn’t the only bank with credit crisis-related woes. National Bank of Canada held asset-backed commercial paper, too, but its swift reaction kept advisors at Montreal-based National Bank Financial Ltd. onside. They gave their firm only moderately lower scores for stability and public image compared with last year. And few NBF advisors cite the credit crisis as a client issue, despite the fact that the Montreal-based parent bank was one of the first banks linked to ABCP use.
That’s because NBF advisors feel that the parent bank reacted quickly and decisively to get out in front of the ABCP problem, says Gordon Gibson, NBF’s senior vice president and managing director. As the ABCP crisis hit last August, National Bank bought $2 billion worth of the paper from its own mutual funds and from 400 NBF retail clients who held about $220 million of ABCP.
“Our advisors recognized that we stepped up to the plate,” Gibson says. “We faced our responsibilities and did exactly what should be done to make our retail clients whole.”
The lower scores in stability and public image are collateral damage of the ABCP crisis and of the fact that NBF revealed its ABCP involvement before other banks revealed theirs, Gibson says: “We were in the papers a lot in those initial days, and it’s not a good-news story per se. There was a little bit of a markdown [in public image] from that perspective.”
Among the independent brokerages, Vancouver-based Canaccord Capital Inc. has arguably been the worst hit in terms of fallout from the ABCP crisis. Some 1,400 of its clients held roughly $269 million of ABCP. As the Purdy Crawford-led Pan-Canadian Investors Committee for Third Party ABCP met with angry retail clients during a cross-country tour in April, Canaccord’s name was splashed across newspaper headlines in unflattering terms.
In April, Canaccord structured a deal with a third party to make whole those clients who held less than $1 million in ABCP and said it was also making arrangements to help clients who held more than that amount. The firm contends that its business has not been aversely affected by the ABCP crisis and that it won’t take a reputational hit.
@page_break@”Ninety-nine per cent of our private client base is not impacted. We’ve seen no perceptible negative trends in any part of our business,” Canaccord chief operating officer Mark Maybank says. “We’ve put forth a deal that certainly addresses the vast majority of [our affected clients’] needs. And I can only see this as further enhancing our reputation in the fullness of time.”
At the other end of the spectrum, Toronto-based TD Waterhouse Private Investment Advice appears to have benefited from the fact its parent bank avoided the ABCP crisis entirely. So far, TD Bank Financial Group is the only member of the Big Six banks not to have to a writedown related to the credit crisis.
Advisors at TD Waterhouse gave their firm a score of 9.3 on stability, up from 8.9 last year — the only bank-owned brokerage to register an improved score in the category. TD Waterhouse also received a 9.0 score on public image from its advisors, a full point higher than a year ago.
“I like the brand,” says a TD Waterhouse advisor in Alberta. “I like saying I work for TD Waterhouse.”
Although the investment dealer is not actively promoting that TD Bank avoided the ABCP mess, it is reaping rewards from the resulting halo effect, says Mike Reilly, the firm’s president and national sales manager.
“From the brand perspective, the message that [avoiding the crisis] sends to our clients has done phenomenal things for us,” he says, adding that this situation has made it easier for advisors to build their businesses and for the firm to attract new clients and advisors.
Toronto-based RBC Dominion Securities Inc. , whose parent, Royal Bank of Canada, was only modestly affected by the ABCP crisis, posted a 9.2 score on stability, a 0.5-point drop from last year. The 8.8 stability rating for Toronto-based BMO Nesbitt Burns Inc. was little changed despite the fact its parent posted writedowns related to the credit crisis. Toronto-based ScotiaMcLeod Inc. ‘s 8.7 stability rating was also little changed. IE