CIBC beats estimates, raises dividends

Canadian banking profit grows 28%

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Canadian Imperial Bank of Commerce beat expectations in the second quarter and raised its dividend, despite putting aside more funds for potential credit losses.

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CIBC’s net income rose more than 10 per cent to $1.69 billion in the three months ending April 30. On an adjusted basis, the bank’s profit fell two per cent to $1.63 billion, or $1.70 per share. Bloomberg analysts had been expecting $1.63 per share.

Revenue grew six per cent from the second quarter of last year to $5.7 billion. CIBC raised its quarterly dividend by two cents to $0.87 per share.

“We are vigilant in our risk management and continue to closely monitor asset classes and client segments for signs of stress, taking proactive steps to address potential exposures,” Victor Dodig, CIBC’s chief executive, said during a conference call following the results. “Broadly speaking, our loan portfolio continues to perform well in an evolving economic environment. We’re comfortable with what we’re seeing, despite market-wide challenges in certain pockets of commercial real estate, particularly in the US office sector.”

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CIBC’s common equity tier 1 ratio, which compares a bank’s capital against its risk-weighted assets to gauge its resilience, stood at 11.9 per cent this quarter, up from 11.6 per cent in the previous quarter.

Provisions for credit losses, or the amount a bank sets aside for loans potentially going sour, were $438 million, up $135 million from the same quarter last year.

CIBC’s Canadian personal and business banking profit grew 28 per cent year over year to $637 million due to higher revenue and lower credit loss provisions.

Commercial banking and wealth management profit, meanwhile, fell six per cent to $452 million.

CIBC’s US operations were weighed down by higher credit loss provisions and expenses, with profit falling 72 per cent to $55 million compared with the same quarter last year.

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Capital markets profit also slipped eight per cent from last year to $497 million.

Amid rising concerns of a commercial real estate downturn south of the border brought on by the work-from-home shift during the pandemic, CIBC chief risk officer Frank Guse noted during the conference call that the bank’s US office portfolio represents one per cent of the the bank’s total loan book and 21 per cent of the overall US commercial real estate portfolio, down from 26 per cent in 2019.

While CIBC was the first bank to beat expectations for the second quarter, Barclays analyst John Aiken was wary

“We are not certain that the headline earnings beat will be enough to offset potential lingering concerns regarding US real estate impairments and outflows in US deposits,” Aiken said in a May 25 note. “We recommend (CIBC) to proactively deal with its real estate exposures and, from our standpoint, are not worried about US deposits at this point.”

Shares of CIBC were up more than two per cent to $56.95 in early afternoon trading in Toronto.

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