Noah Zivitz

Managing Editor, BNN Bloomberg

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Canadian Imperial Bank of Commerce joined its peers Thursday in reporting a substantial beat on fiscal fourth-quarter profit expectations as credit quality improved and its capital markets division stood out with double-digit growth.

CIBC said its net income for the three months ending Oct. 31 totalled $1.02 billion, down 15 per cent from a year earlier. A number of one-time items weighed on the bank's bottom line in the quarter, including a $220-million goodwill impairment tied to a controlling stake in CIBC FirstCaribbean.

On an adjusted basis, the bank earned $2.79 per share. Analysts were expecting $2.52.

The quality of the profit beat was questioned in early reaction from the analyst community. Credit Suisse’s Mike Rizvanovic noted it was a “messy quarter” due to the exceptional items, which also included an $84-million after-tax charge relating to CIBC’s real estate portfolio.

“We would argue that [real estate charge] could be viewed as more of a normal course operating expense, which would imply a much more modest EPS beat relative to expectations and lowering earnings quality in the quarter,” Rizvanovic told clients in a research report.

CIBC set aside $291 million in the quarter for loans that could go bad, down sharply from the $525 million in provisions that were booked in the previous quarter.

The bank’s largest operating division – Canadian personal and business banking – earned $634 million in the final quarter of the fiscal year. That marked a modest increase from a year earlier, and a 25-per-cent increase in profitability from the fiscal third quarter.

Like the other Big Six banks that reported earlier in the week, CIBC benefited from substantial growth in its Bay Street operations as capital markets profit rose 17 per cent year-over-year to $267 million.

The bank's wealth management operations also delivered profit growth in the quarter, while its burgeoning U.S. operations experienced a drop in net income compared to the final quarter of 2019, which CIBC attributed to higher loan loss provisions and the impact of lower interest rates. Sequentially, however, the division’s profit more than doubled to $131 million. 

"We delivered resilient financial performance in fiscal 2020 against the backdrop of a global pandemic and an evolving geopolitical environment," said CIBC CEO Victor Dodig in a release.

"At the same time, we took steps to position our bank for the future, including making strategic investments in our people, processes and platforms, and taking steps to enhance our efficiency," he added. "As we enter fiscal 2021, our strong financial position will enable us to continue executing our client-focused strategy to deliver growth and generate value for all our stakeholders."

In a separate release Thursday, CIBC announced former finance minister John Manley is stepping down from the bank's board of directors in April after 16 years of service, including six as the chair. He will be replaced as chair by Katharine Stevenson upon her election at the bank's next annual meeting. Stevenson currently serves as a director at Open Text Corp. and Capital Power Corp.