CIBC says it will wind up operations at its FirstLine Mortgage business after it failed to find an acceptable buyer.
The big Canadian bank said Wednesday it couldn’t find an acceptable deal after trying since March to shop around its FirstLine mortgage-broker unit. So, one of the country’s largest mortgage brokers will be gradually wound down instead.
As a result, it will stop selling new mortgages through the division as it moves to exit the business, in favour of selling CIBC-branded mortgages, which have better margins.
The Financial Post reports this marks a rare occasion, since it’s unusual for a large bank to have trouble selling one of its assets. Now, some staff will be switched over to CIBC, while others will receive compensation packages.
“We conducted a review of our strategic options concerning FirstLine Mortgages, including a potential sale of the origination platform while keeping the portfolio and focusing on renewals through the CIBC branch network,” the bank said in a statement Wednesday.
“We determined an acceptable deal to sell FirstLine’s mortgage origination platform could not be reached and concluded it’s preferable to cease originations from this brand.”
The bank said in March it was the right time to sell its mortgage-broker business given that CIBC-branded mortgages grew at a 10% rate in 2011, compared with an industry average of 7%.
The move would have allowed it to offer a number of products, rather than just a specific mortgage through an arms-length broker. Now, the bank plans to raise profit margins by selling mortgages in-house, and by allowing bankers to cross-sell products to the clients.
CIBC has more than 41,000 employees across its operations including retail and wholesale banking and financial services, serving more than 11 million customers.
A source familiar with the matter told Advisor.ca that phones have been ringing off the hook since the announcement, with many concerned clients wondering how their mortgages will be affected in coming months.
The bank stressed, however, that while no new FirstLine Mortgages will be issued after the end of next month, it plans to continue servicing current clients through CIBC’s branch network.
In response to client and broker inquiries, it says, “[we] are emphasizing our retail channels to meet client needs through our branches. Clients will be contacted prior to their mortgage renewal date to discuss renewal options.”
Notices were sent to all associated brokers, and they’ve been assured “there’s no impact to approved applications, which have had a commitment issued. The normal funding process will be followed.
“Any applications approved by July 31, 2012 at close of business will be honoured.” For any unapproved applications, brokers are urged to leverage another lender for approval.
For those clients with pre-approval rate guarantees, the bank reminds them the guarantee will no longer be valid after July 31 2012, as it will no longer be selling through the same brand.