CIBC profit climbs 13%, revenue dips

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Profit rose 13 per cent at Canadian Imperial Bank of Commerce in the fourth quarter, driven by higher wholesale banking revenue, and an increase in wealth management income.

Canada's fifth-largest bank by assets made $852-million, or $2.02 a share in the quarter. That compared to a profit of $757-million, or $1.79, during the same period last year.

Revenue fell slightly to $3.16-billion, a drop of about 1 per cent, due to the bank's decision to close down its mortgage broker business. Revenue within the core retail banking business rose 3 per cent.

The results beat analysts' expectations. Adjusted for one-time items, CIBC made $2.04 a share. Analysts were expecting earnings of about $1.98 a share.

CIBC made $3.3-billion for fiscal 2012, up 14 per cent from the previous year.

Chief executive officer Gerry McCaughey has spent the past few years stripping risk out of CIBC's operations, focusing more on retail banking and wealth management than investment banking, which can be more volatile. Mr. McCaughey said the profit reported Thursday shows the benefits of that approach.

"Our progress in 2012 reflects our strategy, which is to be a lower risk bank and, to deliver consistent and sustainable earnings," Mr. McCaughey told analysts on a conference call. "We believe this is the right strategy for this environment, and we believe it is a strategy that will be proven to do well in years to come."

Mr. McCaughey said the sector will face slower profit growth in 2013, echoing comments made by other bank CEOs this week. Despite Canadian banks reporting healthy increases in fourth-quarter and 2012 profit, executives say the pace likely won't stay as strong.

"Looking forward, it appears the current headwinds that are negatively impacting industry profitability, such as lower interest rates and a slowdown in consumer credit growth, will continue to be with us in 2013," Mr. McCaughey said.

CIBC's retail and business banking operations made $569-million in the fourth quarter, down 5 per cent from a year ago, as low interest rates and heightened competition for lending squeezed profit margins, offsetting slightly higher loan volumes.

In an effort to boost profit margins, CIBC moved away from using outside brokers to sell mortgages, shifting those sales into its branches, which is expected to slow loan growth in the coming year, but lead to better profit margins down the road.

The federal government has also tightened rules on mortgage lending in 2012, which has caused a slowdown for Canadian banks. CIBC's mortgage book is flat compared to a year ago, with $150-billion of residential loans on its books.

CIBC's wholesale banking division made $193-million, up 58 per cent from last year, due to increased trading revenue. Canadian banks are experiencing large jumps in their investment banking profits in the fourth quarter compared to last year when trading revenue slumped considerably by comparison.

The bank's wealth management operations made $84-million in the quarter, a 20-per-cent increase over last year, due mostly to higher asset management revenue and record sales of long-term mutual funds, the bank said.

CIBC's corporate division, which includes technology and operations, posted a $6-million gain, compared to a $32-million loss last year, which helped overall earnings. The bank said the difference was due to significantly lower costs in its operations this year.

Provisions for credit losses, or the amount of money banks set aside to cover bad loans, rose slightly to $328-million, an increase of $22-million from a year ago. The bank saw higher losses in business lending, as well as its U.S. leveraged finance portfolio, a business it has since exited.

Analyst John Aiken at Barclays Capital said the bank benefited in the fourth quarter from lower taxes, which helped profits. "Over all, [CIBC's] earnings appear to be solid but are not likely going to be viewed as strong as its peers that have reported to date," Mr. Aiken said in a research note.