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Dec 5, 2019

CIBC misses estimates even with U.S.-focused strategy paying off

CIBC, TD post big misses in the fourth quarter

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Canadian Imperial Bank of Commerce’s strategy of being a little less Canadian is catching on, though that did little to help earnings last quarter.

-CIBC’s $5 billion takeover of Chicago-based PrivateBancorp two years ago was the cornerstone of Chief Executive Officer Victor Dodig’s push to diversify beyond Canada. That plan is working, with profit from U.S. commercial banking and wealth management at a record C$180 million ($137 million) as growth continues to outpace CIBC’s banking businesses in Canada. Earnings missed analysts’ estimates.

Key Insights

-CIBC has a goal of getting 17 per cent of its earnings from U.S. businesses by 2020, with contributions from capital markets and the PrivateBancorp acquisition, the bank’s largest takeover in its 152-year history. CIBC reached that target, with a 37 per cent increase from U.S. commercial banking and wealth management in the quarter.

-Dodig warned investors in May that earnings this year would be “relatively flat” after posting quarterly results hampered by a contraction in domestic mortgages and net interest income. CIBC’s per-share earnings fell 7.9 per cent in the fourth quarter, leaving earnings down 3.9 per cent for the year.

-CIBC has being seeing an increase in provisions for credit losses throughout the year as changes in accounting rules took effect. It set aside $402 million for soured loans in the fiscal fourth quarter, up 52 per cent from a year earlier.

-The CEO told investors in September that the bank “put the brakes on too hard” in cooling its once industry-leading domestic mortgage growth and said the bank is “readjusting.” CIBC’s domestic mortgage book was unchanged from a year earlier at $202 billion in balances.

-Canadian personal and small business banking is CIBC’s biggest and most important division, given its reliance on the domestic operation for almost half of overall earnings. That division earned $601 million in the quarter, down 10%, compared with the three per cent decrease for CIBC Capital Markets and the 8.1 per cent decline for Canadian commercial banking and wealth management.

Market Reaction

-CIBC shares have risen 13 per cent this year through Wednesday, compared with a 12 per cent gain for the eight-company S&P/TSX Commercial Banks Index.

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-Fourth-quarter net income fell 5.9 per cent to $1.19 billion, or $2.58 a share, after recording a C$135 million goodwill charge from selling a 66.7 per cent stake in CIBC FirstCaribbean in November. Adjusted per-share earnings totaled $2.84, missing the $3.07 average estimate of 14 analysts in a Bloomberg survey.