Good morning, everyone, and thank you for joining us for day two of our conference. This morning we've got Hratch Panossian. He is the head of personal and business banking, formerly at CIBC, formerly the CFO. So you've had a few good roles, Hratch. Welcome to our conference. Why don't I ask that you get us started with some opening comments before we get into Q&A?
Sounds good. Good morning, Mario. Good morning, everybody. Thank you for your continued interest in us and for joining us this morning. Look, it's been a very exciting time, I think, in our bank in general, and particularly in our Personal and Business Banking business. I'm very pleased with having stepped into this role April 1 and everything we've done so far. Maybe I can give you a bit of a bit of a going backwards what we've been trying to do, where I think we are, and where I think we could go from here in this business, as the opening remarks. If I go back to really our last investor day, which continues to be the cornerstone of our strategy, our objectives, and what we're trying to execute on.
For this particular business, we had always said this is a critical part of the overall bank's growth goals, profitability goals. So we had targeted getting to a business that can grow 7%-10% revenue and do that sustainably, doing that while improving the efficiency of the business, improving the NIX ratio through operating leverage over time, including the ROE by focusing on the right type of relationships and right type of business. The way we said we would do that back in Investor Day is by applying our strategy, which is very deliberate and very much constructed to focus on the parts of the market that we believe are profitable, are growing faster than the rest of the market, and where we do have differentiated capabilities to actually push on.
And so that was by deepening our relationships in the affluent and mass affluent space, largely through our differentiated model of Imperial Service and leveraging some other assets like our co-brand credit card partnership. And at the same time, getting the business more and more digital in the mass space and for everybody, because frankly, digital for transactions and digital even for sales and origination and digital support, at least for advice, we believe is the way of the future. And it's better for clients as well as better for efficiency. And lastly, simplifying the business. And so particularly as we digitize the business, I think there's opportunities to continue to simplify. And again, by simplifying solutions and processes, we make it easier for our team. We make it easier for our clients and a better experience for our clients, and obviously helps profitability for our shareholders.
So that's been the focus. And in the last eight weeks, I've been going around the country, and I've made it almost across the entire country meeting with our team. And I would say we have an incredible team out there. So I'm very proud of the results the team has delivered. When you look at our performance against those metrics over the last couple of years, we're delivering, right? We're delivering the revenue growth. We're delivering the operating leverage. We're delivering the path. Other than credit losses are obviously impacting ROE as we go through the cycle. But I think we're delivering on a lot of those things. And I can see as I talk to the team the reasons that we're delivering on it. It is our strategy that is starting to work.
When you talk to the Imperial Service team, all of the investments we've made there in talent, in tools that we've given them, whether it's the planning tools like CIBC GoalPlanner that we've launched for them, our ECRM platform that cuts across all of our channels, our lead engines that are more and more using the data we have on our clients, and AI and machine learning powered models to generate better and better leads for our advisors. You're seeing the results of all of those actions in terms of what we're producing. We've got some great momentum. What that's been producing for us is, I would say, quality growth and growth that is relying on ways where we're offering value to clients. We're not competing and winning on price. We're not competing and winning on risk.
And because we're doing that, we've got high client satisfaction scores, really high engagement scores within our team, and good profitability. We think that makes that sustainable as we go forward. So what does come as we go forward? But the environment on the retail side certainly has been slow. It may continue to be slow from a market volume growth perspective. Rates have been helpful. Obviously, rates are now taking a different trajectory. So you might see the overall environment slow down. But within that slowing environment, we actually think our strategy continues to position us well. We've got more than 600,000 clients that are coming through the doors joining our bank every year.
With the analytics we have and the models that we can deploy across distribution and technology that I just described, we think we can continue franchising those clients better than our competitors. That momentum, we think, will drive good revenue growth on a relative basis. We continue to target an efficient business that has some operating leverage in it. We're very excited about the opportunities going forward. We'll continue investing in our strategy.
Yeah, there was a ton there. Some of it we're going to get into. But it certainly got me thinking. Before we start to drill in a little bit, it would be helpful to know you've transitioned from the CFO role. That's when I first sort of got to know you when you were IR, but got to know you better as CFO. So this is an entirely different lens into the bank now, from the CFO role to what you're doing now. With that CFO understanding and this new role that you've got, was there anything that sort of surprised you? Anything that was really, I imagine there were some positives, certainly from your opening comment, it sounds like that. But anything else that you noticed as you transitioned into this new role?
Yeah. So given the role that I had, right, and then the strategy function for our bank sits within the CFO function. So clearly, with respect to having defined the strategy that I just described over the last few years, Jon Hountalas and before him, others and myself had worked hand in hand and partnered on that. So I had a lot of familiarity with the strategy. I had a lot of belief in the strategy. In terms of the finance team, obviously, we get involved in the planning. So all the initiatives, all the business cases around those investments we made, that part I had familiarity with. So I was not surprised to see that all of that was working and that obviously the results are commensurate with what we expected and then some. Where I would say the surprises came in, Mario, is it's a very different business.
It's a very different team going from about 1,000 finance professionals to over 15,000 frontline folks that work with us every day, plus 15,000 people on the back end of the bank, whether it's operations, technology, risk that actually support this business. But the consistency with which the messages of what we're actually trying to do, the strategy, how those have translated all the way down into our front lines, how excited the front lines are, and how much belief there is that this model is the right one was actually surprising to me, right? So that was a positive surprise. On the flip side, and I think you could see this as a positive or a negative, I actually see it as opportunity. Some of the things that you find because of the complexity of this particular business, and I think that's just retail everywhere, right?
It's a people business. But in order to do this business right, you have to find ways to bring your technology tools, whether those are back-end tools or the tools that your team is using, your processes that those tools sit within, and the talent of your people and the training and the objectives and the scorecards that drive their behaviors all together seamlessly, right? And I think we've done a good job there given we've put a lot of change through this business in the last 12-18 months. And so I'm surprised how well those things have been aligned given that timeline. But I think we're just getting started, Mario. That's the thing that's most exciting to me and most surprising is how much more opportunity there is.
We continue to find because of the way we're now operating the business and taking a different way of how we bring in all those stakeholders and views into every decision we make, we continue to find things that we can improve, right? Just I'll give you an example. If we think about our leads, we implemented ECRM across our enterprise CRM platform across the entire bank. But we've also integrated that to our client data in the back end. I mentioned launching some AI-powered, machine learning-powered models. So version one of that model, we had decent conversion rates, right? Lead to sales that were in the low single digits. Version two, where we made some enhancements both in terms of how the model works, but then how it's actually served up to the frontline clients, how we prioritize for them which clients, frontline staff, right?
Which clients they call. How we figure out where we route that lead, right? Is it something that we're going to serve to you, Mario, directly in the app, or are we going to have your advisor call you? And the more you know about clients, the more you can figure out which one's going to be more effective. And then also how you put the context around when you give leads to our advisors, what's the context, right? Not just telling them, "Cold call this person," but saying, "Call this person. Here's the situation they're in. Here's what we can do for them. Here's what they actually need," which makes them far more effective. So you see those conversion rates go into the mid-single digits, and then with version 3 go into the high single digits.
And so you're actually seeing that drive results for us, particularly on the investment side. When you look at the IFIC net sales numbers here in Canada, right? We've been number one or two all year, and the momentum just continues to build. So that's just one little example of places where we'll continue making progress and technology refinements to drive improvement, right? And those are the things as a CFO, you don't get into that level of operational detail. But that's been really exciting for me and very interesting.
That's good. So let's now drill down a little bit more into the strategy, specifically around the affluent. I'm a little jaded on this one because I've heard it many times from a lot of companies that I've covered over many years. That seems to be the focus, affluent and mass affluent. But you've had success. So something's working. So maybe talk about how CIBC targets the mass affluent, what tools are in place. Presumably, this discussion is going to segue into Imperial service because that's the part I think about when I think of the affluent. So let's talk about CIBC's strategy toward the affluent and why you think you've had some success in the near term.
Yeah. Yeah, it's a great question, Mario. And look, I think it's a fair question, right? I got that all the time as the CFO. And you're right. The math of the wallet size and the growth in the wallet size of the affluent client versus, I'll say, the general population is easy to do. And anybody can do it, which is why all competitors know this and it's an area that gets a lot of intense competition. So what is the secret sauce or what is our differentiators? And I alluded to it a bit in my openings, right? I think there's a few things. One is the model. And if you step back for a second, right? We've done a lot of things to actually make this model far more powerful over time. And it's differentiated.
So it's Imperial Service as a model of how we serve the affluent folks. And the second one, I would say, is an exclusive client acquisition channel on top of it. I'll actually say two exclusive client acquisition channels that we have on top of it. One is our co-brand Costco credit card partnership, which we've talked about. And the reason I call that an exclusive client acquisition channel is because we've got an exclusive relationship with Costco for the card and for marketing other financial services to them. And that client base is the numbers are our estimates are 40%-60% of that client base would qualify for a mass affluent client and the offers that we offer to them there, right? So far higher than the representation of that in the population. The second, and I'll come to this in a second, right?
It is part of our success; it is actually our existing client base. So we have about if you look at CIBC, we've got just over 1 million clients in our Imperial Service. You would have 10 times that, call it, in our personal banking outside of the Imperial Service offer. But when you look within that 10 million client base, there's actually more than double the current Imperial Service client base that our analytics would say based on the client's income, the client's transactional patterns, et cetera, they would actually qualify. So they have assets that would be in excess of CAD 100,000 or even CAD 250,000 in investable assets where you get into our Imperial Service offer as a client category. But those assets aren't with us. And so the ability to mine that couple of million-plus client base, call it, which is exclusive to us, right?
That's an acquisition channel that we have. And so those are the three things that we're really relying on. And so if I go back to Imperial for a second, what have we done? Since 2023, why are we seeing results, right? We changed the leadership structure. We put dedicated national leadership on top of this sales force. We've aligned all of the advisors within that. We've changed the scorecards for those advisors. We've changed sort of culturally the way that business is managed. And we've actually changed alignment of which advisors spend time on which clients to have better alignment of both fit, but as well as the level of sophistication of advisor different clients need, right? And that's a model going forward. We made investments.
We made a ton of investments, both hiring the frontline folks, more of them on the advisor side, hiring financial service kind of associates that support them behind that. And so that's a lot of taking the administrative away from the advisor so they could do more of the advice and the sales. And then we've invested in a lot of tools. The CIBC GoalPlanner we've talked about that has been a tremendous tool for us. Our propensity models that generate those leads out of the client base and how those are served directly in our sales force, ECRM to our frontline staff. So those are all the things we've done, but not a lot. And when you look at what that's actually driving, there is tremendous results, right? We're seeing the results in the net sales. We're seeing the results also in the satisfaction of the client.
So our MPS within the Imperial channel is market leading. It's gone up, even though it was market leading to begin with, it's gone up almost 10 points over the last year through these approaches that we're putting in place. The net sales that we have in terms of the IFIC numbers, as I spoke about, we've gone from we were fifth for a while there a year ago or so. Through these efforts, we've actually taken that up. Now we've been number two and number one in terms of dollars of net sales in the market. We think that that's sustainable going forward. Then the last part is some of this franchising, right? Not only are we driving sales with existing folks who are in Imperial Service, these clients where we have a couple of million of them plus, we now have other assets elsewhere.
That goes to the example I was giving you before in terms of the leads, right? We started with a small group of them. We took a few hundred thousand in 2023, and we moved them into Imperial, and we started marketing to them. And what we saw is once they came into that offer and got an advisor and got a full plan done, we saw more than 50% increase in their funds managed at the bank. We've taken a next wave now this year where we're doing a larger cohort of those folks, moving them in. And actually what we're seeing in terms of the uptick on those clients because of all the enhancements we've made is tracking ahead of where the cohorts that we moved in last year tracked.
So since we're doing these in little tranches, we actually have several years of inventory, if you will, of moving folks into Imperial from our own proprietary client base as a channel. In addition to that, we're doing it with the Costco client base that we're bringing in, and we're seeing success there. Then we're constantly going to have these 600,000 a year clients that we're bringing in to keep replenishing the funnel. That's what we're really excited about.
Now, there's a layer beyond Imperial Service as well. Is there any strategy you've seen or you can articulate there? I believe it's called Private Wealth.
Correct.
That's a smaller part of the bank, I imagine. Is there a targeted target strategy there as well?
It is. It is a smaller part of the bank. Absolutely. There's been a strategy on that for a few years. Frankly, private banking for us was an area a few years ago we started investing in. So if you go back organizationally, right? So Jon Hountalas, when he moved into Canadian Banking before he took over the Canadian Banking mandate, he was focused on the wealth side and the private wealth side. And so some of what we brought into Imperial is actually the playbook that we were applying on the private banking side, including some of the leadership that we brought in. We took some of our stars that were building our private banking business. We brought them into Imperial Service and aligned the model more to that. But you're right. It is a smaller part of the bank.
When you look at the numbers, right? I talked about it's sort of less than 15% of our client base would be sitting in this Imperial mass affluent bucket. Much less than that would be sitting in the private banking bucket. And so to drive the real numbers for the bank overall in terms of revenue growth and profitability, it's the Imperial, but it's also the personal banking side. And that's been one of the things I think for all of us surprising, Mario, is as we made these changes in the refinement of the model beyond Imperial, if I step back for a second, right? If I take my team, the personal and business bank, there's really three or four elements in it in terms of the sales force.
You have the personal, what we now have ended up with, right, is personal banking, which is other than Imperial Service, the general sales force that serves our clients. You've got business banking, who are the folks who serve small businesses and our clients in those areas. And you've got a specialized sales force, particularly in areas like mortgages. And a lot of that was sort of not very clearly defined a couple of years ago. What we've now done is actually created very distinct resources with specialized expertise on the business side. We've done that on Imperial Service for sophisticated clients with sophisticated needs. We've actually put more and more specialization around some of the mortgage and other specialized lending.
What that's actually done is when you look at then the rest of the sales force in our personal bank, who's managing the largest number of clients across the country, it's really energized them and it's focused them. And so when I think about the IFIC numbers, and this may be surprising, in terms of the year-over-year increase in our net sales, Imperial is leading the way. But very close behind it is actually our personal banking franchise and the advisors in there that are using we've actually built versions of those tools that are a little less sophisticated than Simplii, both for a client and the advisor when I talk about the leads, when I talk about our planning tools. And we've deployed them on the personal bank side.
Now you have a leadership team that's actually focused on those clients because these other clients are being served by others. The year-over-year increase there has been tremendous. Their contributions have been more recently to our net sales than our entire full-service brokerage franchise has been. They're doing incredible work as well.
So it all sounds so promising. It sounds like great service to your clients, particularly Imperial Service. But service isn't free. So I want to ask, how does this fit into the overall efficiency ratio of the bank and personal bank? I'm talking about Imperial Service specifically. It's a big, meaty initiative the bank has in play. Does it help? Does it hurt the overall efficiency of that business?
Yeah. Look, it's a good business, which makes a lot of sense. And I know this comes up quite a bit. I know there are folks in market that talk about it doesn't make sense. The math doesn't work to have this dedicated advisor model and support functions, et cetera, for the segment of clients that we're talking about here. And I would challenge that. I would challenge that pretty strongly, right? And I'll say a few things. One, the math works. When you actually look at the client base, how deep they are. 40% of these clients are with us. And you look at their actual relationship, it cuts across 40% of them would have transactional relationship, a credit card, investments, borrowings. They'll cut across the full breadth of our offerings. When you look at the revenue per client, it is multiples on an annual basis, right?
It is multiples of what it is in the retail franchise. You've got less reliance on some of the physical channels like branches and so forth in some of these client bases. So when you do the math, the NIX of the business is pretty good. I wouldn't say the NIX drags down the NIX of the overall business, right? And we've now created full P&Ls. We have full P&Ls for Imperial versus the personal bank. And it actually does really, really well. The best segment, which is the second part of our priority, right, is clients who deal with us and have deep relationships, and they deal with us fully digitally where cost of service is lower. That segment actually has no surprise, right? The best NIX and the best ROE.
But I would put this segment in the Imperial model a close second with respect to the value it drives for our bank, right? And we've talked about this before. We're trying to get the bank's ROE up. If you take it all the way down to ROE, Imperial Service actually has an ROE, and these mass affluent clients, right, have an ROE that is well into the 20%. Why? And even over 30%, right? Because you've got clients with the large parts of their business as investable assets. It's deposits. It's not necessarily borrowing. So they don't use a lot of capital. So when you look at the math, it actually makes a lot of sense. The last point I'll make is where the world is going is actually, I think, more conducive to this model. And why do I say that, right?
I talked about a lot of things. But think about the digital stats, right? 95% of our transactions are currently digital. Think about sales, right? 38% of our sales are actually happening digitally. And that's true for clients who have an advisor too, right? I'm sure you have an advisor somewhere, Mario. You're not going to your advisor or to the branch every time you want to do a balance check or a transfer, right? So as the world gets more digitized, and then as we're throwing the tools that we are at our advisors to make them more productive, to take administrative tasks away from them, we're actually even starting to go with GenAI now to get better capabilities for these clients to prep for meetings and to summarize things after meetings. You're getting the productivity per advisor further and further up over time.
With better and better leads and data, you're getting the productivity on the sales side further and further up. And so I actually think the math for this segment is better than it used to be 10 years ago. And I think it's going to become better and better because you're going to be able to load these advisors with more clients per advisor as some of this productivity goes up.
That's helpful. So let's think now, switch gears a little bit. No discussion with CIBC would be complete without a discussion of the mortgage market. Mortgages matter to CIBC. There's no doubt. It's a big part of the business. Rates have come down 25 basis points. We're probably going to get a little more, mostly Canada, maybe some later on in the U.S. Let's talk about the mortgage market in this respect. It was in the summer of 2023, it had become a sort of game for people to write about how the meltdown of the mortgage market was going to take down the Canadian banks and CIBC with it. And then over time, that's evolved. We're not hearing that as much now. And I think part of it relates to how proactive the banks were in addressing the issue.
So let's talk about your view, CIBC's view of the Canadian mortgage market, what the reduction in rates means, how much more of a rate reduction we need, why it is, and this is my view, I'm not putting words in your mouth, my view is the mortgage market isn't going to cause the isn't going to be the problem. It might cause problems in other loans, but won't be the area of concern. So help us think through CIBC and the mortgage market.
Sure. So yes, mortgages are important. Let me start there, right? Mortgages are a key product for clients. And they are for any Canadian bank a large part of the lending side of the balance sheet and obviously for us, right? If you look at our business of the CAD 320 billion or so we have on our balance sheet on lending, about CAD 270 billion is related to residential real estate, right? So it's a big portion of it. That's a good thing, not a bad thing, as we've been saying for many years from a risk perspective, right? So our approach to mortgages is it's a key client for it's a key product for our clients. We need to help them with their homeownership goals. We need to be competitive in market.
But winning share in mortgages for the sake of winning share in mortgages and doing that at the expense of risk or pricing is not something that we want to do. You've been seeing that the last little while, right? Interestingly, if you go back the last couple of years, Mario, you see how our mortgage volume tracked, right? Coming into sort of 2021 and through that year until we got to the point where mortgage margins weren't good, we were actually ahead of market. So when there's good business to do and pricing is good and margins are strong, then we're okay being a little bit ahead of market. Now, we never want to go on mortgages, like I said, doing mortgages for mortgage's sake and being well above or below market. But we're managing it that way, right? We do it for our strong clients.
We do it where we have good client relationships and we'll be more sharply priced. But otherwise, we're also managing margins. I think you see that in our NIM margin performance, particularly the PBB segment. Margin performance has been helped by that approach. Then when margins weren't very strong after that, and at some point there was not much margin or profitability to speak of in the market, we were a bit behind market. If you look at this year, we've been a little more cautious, a little bit behind. We've been around 1%. Market's been a bit better than that over the last year. But that's okay because the math overall works and the revenue side of the equation has worked relative to market. Now, as market picks up, you've got to be in the market, right?
There's too many zeros in this product that if you're not keeping up with market or being close at least, it doesn't have to be where you win. We still believe investments and deposits and cards are better areas to win from a profitability perspective outside of doing whatever the client needs us to do. But you do have to be in market. So we recognize that it's a key product going forward. Now, on the risk side, let me address why I don't think mortgages is a bad thing the way we're doing them, particularly focusing on profitability and risk, is because mortgages historically have had a very low loss rate and they continue to. You look at mortgages, yes, delinquencies are going up. Yes, you've got some of the delinquency buckets, particularly in certain areas being driven up. LTVs are going up because property values have been impacted.
But clients are managing through that. And the loss rates and impairments haven't moved, right? We're still talking about a basis point of charge-offs in this business. And while we might see a little bit of increase here and there, I certainly don't see reserves becoming a problem. We've provided a lot of good disclosure around the payment shock that people will see, right? And you sort of had that even assuming interest rates stayed at 6, which it doesn't sound like they will. We had disclosed that we were talking about mid-single digits, say, an average impact as percentage of income in terms of the payment shock that's coming to clients. And some of those clients, it's been coming. They've been renewing and we're not seeing any materially different experience there.
We're not seeing delinquency starting to go up when their payments go up because they're all taking the right actions in advance. They're managing through it. We're proactively helping them manage, particularly those clients that are going to see the highest increases in rates, which are those clients that would be in that negative amortization bucket that has consistently been coming down because of both our proactive actions and clients' actions. So when I put it all together, we've done this deliberately and we've talked about it quite a bit before. I would say strategically, our Canadian consumer portfolio is very well positioned. About, like I said, 270 of the 320 is in RESL and we've been very responsible in RESL. Resolve will be one of the best performing in terms of loss ratios, asset classes, no matter what happens to the consumer in Canada.
Then you look at our card book. We have a very strong card book. A large portion of our CAD 19 billion is from our co-brand portfolio and our travel card portfolio, which are premium cards and the Visa Infinite and so forth, based on clients that are doing very well. And so when you look at that, our delinquency ratios and so forth and loss ratios and cards are still better than pre-pandemic, partly because the franchise has changed. And then when you look at the rest of the portfolio, we have been very measured in terms of the auto space, in terms of other unsecured space. We actually have less exposure there than some others across the peer group.
And so we feel good strategically about the composition of our portfolio and how it will fare through potential downturn here or at some point, whatever the cycle is going to look like as rates start turning.
Well, you covered what I was going to get to, the non-mortgage stuff. So I appreciate that. And that takes us to the end of our time. Hratch, I appreciate you doing this and taking the time to meet with me.
Okay. Thank you, Mario. Appreciate the questions.
Have a good day.