When a large chunk of the CIBC logo on the bank’s lofty Toronto headquarters came crashing down onto Bay Street during a January windstorm, it was as if Nature was playing a cruel joke. CIBC was already having a tough time convincing investors and analysts that the sky is not falling.

Beleaguered by criticism that it has understated its exposure to the U.S. subprime mortgage market, CIBC has orchestrated a management shakeup in an effort to shore up its credibility.

> Richard Nesbitt, CEO of TSX Group Inc. , will take over as CEO of CIBC World Markets Inc. at the end of next month, replacing Brian Shaw, who is leaving the bank.

> Tom Woods, the bank’s current CFO and a CIBC veteran, has already stepped in as chief risk officer, replacing Ken Kilgour, who is also leaving the bank.

> David Williamson, the former president and CEO of Atlas Cold Storage and CFO of Clarica Life Insurance, will replace Woods.

> Gary Whitfield joins as vice president of CIBC Private Wealth Management, comprising CIBC Trust, CIBC Private Banking and CIBC Private Investment Counsel. Whitfield most recently worked for Barclays Private Bank in Britain; before that, he spent nine years at CIBC in positions that include director of wealth management for business banking.

> Nicholas Le Pan, formerly the head of the Office of the Superintendant of Financial Institutions, and Robert Steacy, a retired CFO of Torstar Corp., have been nominated to the board of directors. Steacy has also acted as director and chairman of the audit committees of Cineplex Galaxy Income Fund, Domtar Corp. and Domtar Inc.

CEO Gerry McCaughey stays put.

Analysts agree some leadership changes were definitely needed at CIBC. Mario Mendonca, a banking and insurance analyst at Genuity Capital Markets in Toronto, calls the shuffle a good first step. “The market wanted a pound of flesh,” says Mendonca. “So, it almost didn’t matter who it was, as long as they were senior.”

It would not have made sense for McCaughey himself to step down without an obvious successor, she adds.

CIBC’s stock became badly battered after the bank revealed in December that it had significant exposure to the U.S. subprime mortgage market. In order for CIBC’s stock to begin trading on fundamentals again or on future earning power rather than negative sentiment associated with its subprime exposure, Mendonca says, the bank needs to make two more major changes: come clean about the real writedown figure and provide better disclosure on short-term earnings expectations.

So far, CIBC has lowballed its estimated losses — so much so, says Mendonca, that the bank’s credibility has been badly hurt. Recent comments by CIBC have pegged the credit-default swap losses linked to ACA Capital, the bank’s financial guarantee insurance provider, at about $2 billion. Analysts believe the actual figure is considerably higher. Making matters worse, there are signs ACA is teetering on the edge of bankruptcy.

Mendonca’s own analysis shows that the writedown could be anywhere from $3.5 billion to $3.7 billion.

“[CIBC] needs to be reasonable and take a charge that’s believable, and so far it hasn’t,” Mendonca says. “To the extent that it is not coming clean in explaining to the Street that the real embedded loss is much higher than $2 billion, then it’s hard for investors to take management seriously.

“It’s hard to have faith in management when the management isn’t being entirely clear,” she adds. “It is doing itself a huge disservice.”

The arrival of fresh blood in the form of Nesbitt to direct CIBC World Markets is a feather in the bank’s cap, says Chris Lowe, CEO of Copernican Capital Corp. in Burlington, Ont., and senior vice president and portfolio manager for AIC Ltd.

“It seems to be a very sensible move,” Lowe says of the CIBC management shuffle. “When an organization makes the kind of mistake it has made, someone has to go.”

The subprime blunder’s heavy blow to CIBC’s stock price, which fell from more than $100 a share this past fall to less than $70 a share this month, could have one upside — at least, for bargain seekers: amid the sell-off, some are wondering if this may be a good time to buy.

“When Armageddon has been priced into a stock, that’s not a bad time to think about buying,” Lowe says. “When something as brutal as this happens, the market prices it in — plus plus.”

@page_break@The subprime fiasco comes only a few years after another U.S.-based crisis for CIBC, which suffered a $2.5-billion loss related to the Enron Corp. scandal — a mess McCaughey himself was brought in to clean up.

James Dancy, vice president and portfolio manager with AIC, notes it must be pleasing for the embattled CIBC CEO to be able to bring someone of Nesbitt’s stature over. But by not resigning himself, McCaughey sends a mixed message about the depth of his knowledge about the bank’s concentration of risk. “Perhaps he’s suggesting in a sinister sense he didn’t know,” Dancy says. “You’d prefer to think that he knew than that he did not know.”

Whether it is a case of ignorance, McCaughey is undoubtedly trying to steer the institution on a more conservative course, especially when it comes to risk management. He is hoping Nesbitt, a personal friend, can deliver.

Nesbitt, 52, spent 10 years at CIBC Wood Gundy and once served as president and COO of HSBC Securities (Canada) Inc. He took over at TSX from Barbara Stymiest when she left to join Royal Bank of Canada in 2004.

A self-confessed Roy Rogers fan, Nesbitt grew up on a farm in southern Ontario and first studied in a one-room schoolhouse. He likes to ride horses as a hobby, but is expected to be anything but a cowboy at his new job.

“I’d like to see higher risk-management control,” says Brenda Lum, managing director of Canadian financial institutions at rating agency DBRS in Toronto, “and a risk tolerance that’s more consistent with the goal of having sustainable earnings.” DBRS has placed the bank under review, with negative implications.

Despite the considerable combined experience of all the new arrivals at the bank, they will have a learning curve ahead of them, Lum adds, and the bank must continue to focus on developing sustainable earnings.

At the moment, she says, market conditions remain volatile, so it’s too early to assess how their performance will go: “It’s not just looking at how [the subprime problem] happened and why, but how in the future to prevent this from occurring. Hopefully, bringing in new people will have that righted.”

Lum likes the nomination of Le Pan, the former OSFI head who recently reviewed the performance of the RCMP’s white-collar crime units, to CIBC’s board of directors. The new board will be elected at the bank’s annual general meeting on Feb. 28.

“Strengthening its board with Nick Le Pan can only be positive,” Lum says. “He’s a very smart man and he understands the banking business.”

Steacy, too, has significant board experience.

But Mendonca is more skeptical, arguing that boards of directors don’t do their jobs anymore.

“I’ve lost a lot of faith in the boards,” he says. “The board doesn’t make any difference — unless Le Pan is going to behave as a board member should.” IE