CIBCFernando Morales/The Globe and Mail
Canada's banks are now three-for-three when it comes to beating expectations, as Canadian Imperial Bank of Commerce turned in a quarterly profit that was up 48 per cent from last year.
Following on solid results last week from Bank of Montreal , CIBC reported a $644-million quarterly profit, or $1.41 per share. That handily beat analysts' forecast cash earnings of $1.33 per share. Toronto-Dominion Bank also reported better-than-expected results on Thursday.
"Against the backdrop of a recessionary economy, our core businesses performed well," said CIBC chief executive officer Gerry McCaughey in a press release.
Despite the fact it exceeded expectations, CIBC's results drew lukewarm reviews, as the bank's loan losses are rising, and the results are not as impressive as those from domestic rivals."
The significant beat on credit that we had been anticipating did not appear and we are modestly disappointed," said Barclays Capital analyst John Aiken in a report on Thursday.
"Similar to other banks, CIBC also experienced a deterioration in credit quality with sustained, high levels of formations, although admittedly lower than the third quarter," Mr. Aiken said.
Over all, it was a positive quarter for CIBC, however, on a relative basis, its earnings were weaker than what we have seen from TD and Bank of Montreal and, despite exceeding consensus expectations, could be the laggard of the group again this quarter," said the Barclays analyst.
For the year, CIBC reported a $1.2-billion profit, reversing a $2.1-billion loss in 2008, when U.S. credit losses weighed heavy on the bank's results.
Provisions for loan losses at CIBC fell in the fourth quarter from levels seen in previous three months, declining to $424-million from $547-million.
However, year over year, provisions for bad loans have more than doubled, from $202-million in the final quarter of 2008, due to higher losses on credit cards, unsecured personal loans and corporate loans.
CIBC has the largest credit card portfolio among domestic banks, and losses on these personal loans depressed profits from the retail banking division. Profit from domestic retail banking, the core business at CIBC, fell to $1.9-billion in 2009, down from $2.3-billion in 2008.
CIBC World Markets, the bank's investment dealer, lost $507-million in 2009, compared to a $4.2-billion loss in 2008, as the unit continued to wind down exposure to U.S. credit markets.
"Wholesale banking exceeded its financial objective set at the end of 2008, which was to deliver annual net income between $300-million and $500-million from its continuing businesses," Mr. McCaughey said in a release.
The remainder of Canadian banks report their 2009 earnings in the next few days, with National Bank scheduled to release its financial results later on Thursday, Royal Bank of Canada reporting Friday and Bank of Nova Scotia checking in next week.
All of the bank stocks have rallied since March on expectations of a recovery in profits as the recession eased.
As Bank of Montreal economist Robert Kavcic said Thursday; "The sector has surged more than 50 per cent over the past year, and is the top performing group on the TSX over that period - yes, even better than the gold stocks."
A number of analysts picked CIBC as the bank most likely to provide pleasant surprises this quarter, with strong capital markets performance translating into better-than-expected earnings.
CIBC 's valuation lags that of rival Canadian banks, with a lower price-to-earnings ratio and other multiples, due to problems that include losses in U.S. credit markets and weak growth in its retail banking division.
After selling equity over the past 18 months to offset U.S. credit losses, CIBC ranks as the best-capitalized bank in the country, with a Tier 1 capital ration of 12.1 per cent, far in excess of regulatory requirements
Andrew Willis