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CIBC profit climbs, revenue dips Add to ...

Canadian Imperial Bank of Commerce's posted a second-quarter profit up slightly from a year ago, but down sharply from the previous quarter as the bank's retail and wholesale banking divisions fell from their lofty heights.

The bank posted profit of $678-million, or $1.60 per share, up from $660-million, or $1.59 per share, during the first quarter of 2010. After adjusting for one-time items, second quarter profit reached $1.75 per share, lower than consensus analyst estimates at $1.80 per share, according to Thomson Reuters.

Last quarter CIBC's profit reached $799-million.

The bank's retail division, which posted a net income of $553-million suffered from narrower spreads on its lending business, which means CIBC got less of a return on the deposits it lends out. Lower revenue out of FirstCaribbean International Bank also lowed the unit's profit.

"The marketplace on lending and mortgages is competitive," David Williamson, CIBC's group head for retail and business banking, said on a conference call. "We'll see just how that plays out over time."

CIBC's retail division was also affected by securitizing $1.7-billion of its credit card portfolio last quarter. The move took a toll on margins because the credit cards that were sold off charge high interest rates, which lead to higher lending spreads.

Wholesale banking also saw lower profits. Net income fell to $112-million on lower corporate and investment banking revenue. This drop stems from a quieter capital markets, giving the bank less opportunities to make money. Chief executive officer Gerry McCaughey said this unit faces a "more challenging" environment and added that the bank's lower advisory and investment banking fees declined "in line with market conditions."

Analysts expected these units at most banks to suffer this quarter, but BMO's earnings yesterday provided some hope that things could change. Analyst John Aiken at Barclays Capital referred to CIBC's profit as "a disappointing miss against consensus" estimates.

On the bright side, CIBC's provision for credit losses fell once again. They now sit at $194-million, down from $209-million in the first quarter. The lower total stems from a strengthening credit environment in which writeoffs and bankruptcies in the credit card and personal lending portfolios keep falling.

However, CIBC's structured credit business continues to suffer. Another loss of $70-million was recorded this quarter, which comes on the heels of a $68-million writedown last quarter. These losses affect wholesale banking's bottom line.

Analysts noted that CIBC is flush with capital, which Mr. McCaughey acknowledged on the conference call. "We are generating capital from earnings much faster than we are able to use it," he said.

That prompted questions of a dividend hike, but Mr. McCaughey would not offer a definitive answer. Yet he did hint that it's on his mind.

"In theory, we're eligible for a dividend increase," he said. However, CIBC has stated a target dividend payout range of 40 to 50 per cent of income, and they are at the top end of that now. For that reason, Mr. McCaughey said he would like to move down in the range before pulling the trigger on a hike "so that you're given more room when you get back into a slower [economic] environment."

Still, investors have something to hope for. "It's possible that we could move a little bit earlier than we have in the past because of the excess capital," Mr. McCaughey said.

The underlying issue that forces CIBC to be so hesitant is uncertainty around Basel III requirements. Although the main capital rules have been well laid out, Mr. McCaughey said there could be some surprises or more stringent requirements around the corner.

"There are enough discussions going on globally that we think the possibility [of a surprise]is fairly strong."

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