Canadian Imperial Bank of Commerce reported encouraging first quarter earnings Thursday, but profit dipped on structured credit losses.
CIBC made $798-million in the first quarter of fiscal 2013, falling short of the $835-million reported in the same period last year and the $852-million earned last quarter. Earnings per share amounted to $1.91, lower than the average analyst estimate at $2.02, according to Capital IQ.
Stripping out significant one-time losses, however, CIBC made $895-million, its highest quarterly profit on record and surpassing adjusted earnings estimates. The bank's adjusted income amounted to $833-million in the same period last year. The current quarter's major loss, worth $148-million, stems from the structured credit run-off business where CIBC incurred a charge as part of a settlement in a legal proceeding brought by Lehman Brothers' estate.
CIBC's retail banking profit was solid in the first quarter of the fiscal year, bucking fears that all Canadian banks would be hit a slowdown in this area as consumers and homeowners scale back on how much they borrow. Retail net income amounted to $611-million, accounting for just over three-quarters of the bank's total profit last quarter, on the back of higher fees and a lower provision for credit losses.
CIBC reported stronger net interest margins, which measure the amount of money the bank makes from lending after accounting for how much it costs to borrow the money it doles out. This spread was particularly strong in the credit card business, which posted record margins, and the bank is making margin gains on its mortgage book after taking control of the sale of CIBC-branded products.
The bank also saw strong capital markets earnings, after accounting for the Lehman Brothers settlement. Adjusted net profit came in at $200-million, boosted by strong fixed income revenues.
With the lion's share of income coming out of the personal banking division, chief executive officer Gerry McCaughey stressed once again the CIBC is now a much less risky bank. "The broad-based performance across our core businesses reflects our first principle which is to be a lower risk bank delivering consistent, sustainable earnings," he said in a statement.
CIBC's earnings were also boosted by lower provisions for credit losses, demonstrating the positive effects of a recovering economy. Current provisions fell $73-million, or 22 per cent lower, from where they were during the same period last year as a result of lower writeoffs and bankruptcies on CIBC credit cards and lower losses in the U.S. real estate finance portfolio.
Noticeably absent from Thursday's earnings was a dividend increase. Both Royal Bank of Canada and Toronto-Dominion Bank boosted their dividends, but CIBC chose not to do so even though its payout ratio is under 45 per cent. Addressing the issue on a conference call, Mr. McCaughey said the bank is in the midst of buying back shares, and the extent of its repurchase program will determine future dividend hikes. " The degree of buyback drives the degree of dividend increases available to you," he said.
Mr. McCaughey also shot down speculation that the lack of a dividend hike suggested the bank is concerned about the stability of its earnings in the near future. "I wouldn't read too much into our not raising the dividend this quarter."
Looking forward at the macroeconomic picture, CIBC noted that "we expect European governments will prevent sovereign debt troubles from spilling over into a larger euro zone banking crisis" but the region is still in a mild recession, and strengthening U.S. housing fundamentals should help to offset reductions in government spending.
Even though the bank's retail division posted strong earnings, CIBC also continues to expect "slightly slower growth" in mortgage demand and "limited growth" in demand for consumer credit.