CIBC to wind down FirstLine Mortgages unit

TORONTO — CIBC has failed in its attempt to sell its broker mortgage brand, FirstLine Mortgages, one of the rare occasions in recent history in which a bank has not been able to find a buyer for one of its assets.

As a result, the entity, which at one stage was the country’s largest mortgage broker, will be gradually wound down.

Some staff will become CIBC employees while others be offered 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,” a CIBC spokesman said in an e-mail. “We determined that an acceptable deal to sell FirstLine’s mortgage origination platform could not be reached and concluded that it is preferable to cease originations from this brand.”

The bank stressed that while no new FirstLine Mortgages will be issued after the end of next month, “we will continue to service these clients and mortgages – but in the future through CIBC’s branch network.”

Given that CIBC was a willing seller, it’s not known why a buyer couldn’t be found. Sources have indicated that talks came unstuck a few days back with a potential suitor.

If nothing else, the non-sale is a further indication of how much the broker channel sector has lost attractiveness to potential buyers.

At least two other banks, including Royal Bank of Canada and Bank of Montreal, have already abandoned mortgage brokers.

“It’s a bad day for the broker market. Anytime you have the former number one brand shutting its door, it’s an unfortunate situation,” said Robert McLister, editor, of Vancouver-based Canadian Mortgage Trends.

“Before the credit crisis, it was a huge, iconic brand.”

The sale process started in early March. At the time CIBC said it did not expect the process to take long.

“Once this process is complete, we plan to increase renewals into our CIBC brand from the FirstLine platform over time. Benefits of this will include higher net interest margins and deeper relationships as these clients enter into CIBC branded channels.”

Higher net interest margins arise, in part, because compensation for brokers is higher than for CIBC’s mortgage specialists.

In March, CIBC said “the time is right” to make such a move given that it has invested in its branch-based mortgage business, including a substantial build of its mortgage advisers, a process, it said, was paying off.

That message was reinforced Wednesday when CIBC said a “key strategic priority” is deeper client relationships.

“In support of this objective we are emphasizing our CIBC branded channels where we have an opportunity to deepen client relationships, have higher levels of client satisfaction and better NIMs [net interest margins.]. Our FirstLine brand does not support this strategy as the broker channel resulted in primarily single product client relationships, thin margins and lower levels of client satisfaction given the transactional nature of the relationship,” said the announcement.