Canadian Imperial Bank of Commerce said Thursday that it will revamp the way it interacts with its auditors as the financial services industry deals with the fallout from Enron Corp.'s collapse.
CIBC said Thursday that while it has confidence in the "capability and independence" of both its audit firms - PricewaterhouseCoopers LLP and Arthur Andersen LLP - it was putting a string of restrictions in place on work that can be performed by the firms.
John Hunkin, CIBC's chairman and chief executive officer, said all work by auditors will need to be approved by the board of directors' audit committee; a "blanket prohibition" has been placed on awarding any information technology or systems-implementation projects; and all non-auditing work being performed by the auditor firms will be moved to another division.
The collapse of Houston-based Enron, the biggest bankruptcy in U.S. history, continues to weigh on equity markets, and has brought the accounting practices of many companies under increased scrutiny.
Enron's failure has focused attention on the potential for conflicts of interest when auditors also act as consultants to their clients.
Shares of firms such as Tyco International Inc., Computer Associates International Inc. and International Business Machines Corp., for example, have seen their stocks plummet on recent news reports of accounting irregularities there.
CIBC proposed the "reappointment" of Andersen and PricewaterhouseCoopers in a recently issued proxy circular.
Mr. Hunkin made the announcement at his company's annual general meeting in Halifax, after releasing better-than-expected first-quarter earnings that showed sharp losses from exposure to Enron and Global Crossing Ltd. were offset by strong performance from its retail-banking division.
CIBC posted earnings of $355-million or 87 cents a share for the three months ended Jan. 31, down from $515-million or $1.27 during the same period a year earlier.
Analysts were expecting CIBC to earn 73 cents a share, according to tracking firm Thomson Financial/First Call.
Return on equity, a key measurement of a bank's profitability, was 13.2 per cent up from its fourth quarter but sharply lower than its year-earlier reading of 20.1 per cent.
Revenues for the quarter were $3.08-billion versus $2.95-billion last year.
"CIBC delivered strong performance during the quarter in several businesses, including cards, mortgages and wealth management, demonstrating that our focus in these key areas is delivering the expected results," Mr. Hunkin said in a statement.
"CIBC's strong retail performance was offset by higher loan loss provisions, in particular to Enron and Global Crossing. We took action during the quarter to address our exposures and build loan-loss provisions to appropriate levels." Loan-loss provisions were $540-million during the first quarter, the bank said, up from $403-million in its fourth quarter.
The bank reaffirmed its January prediction that had 2002 provisions pegged at between $1.25-billion and $1.35-billion, up from an initial estimate of about $1.2-billion.
CIBC has said it has $342-million in credit exposure to fallen energy trader Enron and $386-million-million to Global Crossing after their bankruptcies.
Shares of CIBC, listed on the Toronto Stock Exchange, were up $2.07 to $52.40 at last check Thursday afternoon, nearing the top end of their $45 to $57.15 year-long range.
Earlier this month, its shares stumbled on reports that the bank and other key lenders may be called to testify about their dealings with Enron.
The U.S. House of Representatives' energy committee wants to talk to eight leading underwriters and lenders, including CIBC World Markets Inc., CIBC's investing banking arm, about their dealings with Enron, The Globe and Mail reported on Feb. 21.
The committee is considering holding hearings into the links between Enron and its bankers.
Several analysts were skeptical about CIBC going into this earnings report, noting it is heavily involved in the U.S. capital markets while the other big Canadian banks don't have the same level of exposure south of the border.
CIBC is the country's third-largest bank by assets, and fourth by market capitalization.
CIBC also announced Thursday that was lifting its quarterly dividend to 41 cents a share from 37 cents. The dividend, it said, is payable on April 29 to holders of record on March 28.