CIBC posts profit gain, hikes dividend as bad-loan reserves come in below analysts’ forecasts

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Canadian Imperial Bank of Commerce CM-T reported higher fiscal fourth-quarter profits and raised its dividend as provisions for bad loans were lower than analysts anticipated and retail banking profits rebounded.

The Toronto-based bank reported provisions for credit losses – the money banks set aside to cover loans that may default – of $541-million in the quarter. That was less than analysts expected, and most of it was earmarked for loans that are already past due. CIBC took only $63-million in provisions against loans that are performing but could go sour in future.

That contrasted with Bank of Nova Scotia BNS-T, which was the first of Canada’s six largest banks to report fiscal fourth-quarter earnings on Tuesday, and surprised investors by adding nearly $1.3-billion of provisions – far more than analysts predicted.

At CIBC and its large rivals, provisions against loan losses having been climbing from unusually low levels toward more normal rates. The bank’s chief risk officer, Frank Guse, told analysts on Thursday that CIBC expects “some further normalization” of impaired loans in its consumer banking portfolio.

He said that absent “a more rapid shock to unemployment” or a larger-than-expected decline in GDP, CIBC’s assumption is that losses on impaired loans will rise slightly above the bank’s previous guidance – which was 25 to 30 basis points, or between 0.25 and 0.3 per cent of the portfolio – to settle in the mid-30s basis point range in the coming fiscal year. (100 basis points equal one percentage point).

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Chief executive officer Victor Dodig said economic growth “is expected to continue to slow,” adding to an already sluggish economic backdrop with interest rates and inflation running high. But he said the bank can adapt to changing economic conditions, and there is hope for a smooth recovery.

“If things go slow, we’ll manage accordingly,” Mr. Dodig said on a Thursday conference call. “If things turn better, and there’s a very good chance that we have this ‘soft landing’, we will capitalize on that as well.”

CIBC earned $1.48-billion, or $1.53 per share, in the quarter that ended Oct. 31. That compared with $1.185-billion, or $1.26 per share, in the same quarter last year.

After adjusting for certain items, CIBC said it earned $1.52-billion or $1.57 per share, ahead of analysts’ consensus estimate of $1.55 per share, according to data from the London Stock Exchange Group.

CIBC raised its quarterly dividend by 3 cents to 90 cents per share.

Fourth-quarter revenue increased 8 per cent year over year to $5.8-billion, while expenses were down 1 per cent to $3.4-billion.

CIBC recorded $114-million in severance charges in the fourth quarter as the bank looked to rein in costs, and finished the fiscal year with a 5-per-cent reduction in full-time staff.

For the full fiscal year that ended in October, CIBC’s revenue increased nearly 7 per cent to $23.3-billion, though adjusted profit dipped slightly to $6.5-billion as expenses increased 12 per cent to $14.3-billion.

Profit from CIBC’s Canadian personal and small business banking division was $635-million in the fourth quarter, rebounding from a weak quarter a year earlier. The profit margins the bank earned on loans bounced back and loan volumes increased by 2 per cent, while expenses were relatively unchanged year over year.

But earnings from the bank’s U.S. commercial banking and wealth management arm fell sharply, to $50-million, as deposits fell 6 per cent and margins on lending contracted.

Canadian commercial banking and wealth management fared better, with profit up 4 per cent to $490-million, with income from fees up 6 per cent.

Capital markets profit was $383-million, up modestly from the same quarter last year, as a surge in trading revenue offset a 12-per-cent rise in expenses, which was driven in part by severance charges.

CIBC increase its capital reserves, with its common equity Tier 1 (CET1) capital ratio rising to 12.4 per cent, from 12.2 per cent in the third quarter, as banks stockpile capital to meet rising requirements from regulators.