CIBC Grapples with Regulatory Breaches in Mortgage Portfolio
CIBC has been working on addressing a series of regulatory breaches in its mortgage portfolio over the past year, as per orders from Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI).
According to people familiar with the matter cited by the Globe and Mail, the breaches were discovered during a routine audit involving thousands of CIBC’s clients who had exceeded acceptable debt obligations due to lines of credit secured against their homes. These problems were not linked to fraudulent activity, but rather a lack of follow-up from the bank to ensure customers closed other credit lines, resulting in an excess of total credit available.
The issues were discovered amidst a period of heightened attention from OSFI towards Canada’s overheated housing market and rising interest rates. In recent communications, OSFI expressed concern about the extension of mortgage amortization periods potentially contributing to longer indebtedness and threatening the stability of the financial system.
Internal estimates suggest that the process of resolving these issues could take another two years. This delay, coupled with the ongoing discovery of problematic mortgages, has created a serious burden for the senior leadership of CIBC, including its CEO, Victor Dodig. Despite the administrative nature of these issues and their relatively small impact on the bank’s $266-billion Canadian mortgage book, their ongoing presence has disrupted one of CIBC’s core businesses.
To address these issues, CIBC has invested heavily in correcting its system, including hiring consultants from Deloitte to review its processes and implement necessary changes to prevent a reoccurrence of these issues. Some adjustments were made to customers’ loan profiles to bring them in line with regulatory requirements. However, the bank continues to discover problematic mortgages within its books, extending from its retail clients to those within its digital-only banking subsidiary, Simplii Financial.
Information for this story was found via the Globe and Mail. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
