CIBC earnings dive, but shares gain ground
Canadian Imperial Bank of Commerce had a profit of $436-million or $1.06 a share in the fourth quarter, down from $884-million or $2.53 a year earlier, as fallout from the U.S. subprime mortgage debacle continued to take its toll.
Including one-time items, the bank's cash share profit came in at $1.57, slightly ahead of the Bay Street consensus forecast of $1.55, although one analyst quickly slapped a "sell" recommendation on the shares, citing a lack of clarity about future writedowns. Nevertheless, in a rally of financial stocks, CIBC's shares still rose 88 cents to close at $46.18 yesterday on the Toronto Stock Exchange, having earlier climbed as far as $47.99.
The bank also announced that telecommunications entrepreneur Charles Sirois, who has been on its board of directors since 1997, will take over as its chairman Feb. 26, replacing William Etherington.
Revenue fell to $2.2-billion from $2.9-billion a year earlier and provisions for loan losses climbed to $222-million from $132-million, mostly because of higher credit card delinquencies, CIBC said.
CIBC, the Canadian lender that has been most heavily damaged by the U.S. financial crisis, said final share profit for the fourth quarter reflected a hit of 48 cents a share from positive and negative items on an after-tax basis.
The quarterly showing gave CIBC a loss for fiscal 2008 as a whole of $2.1-billion or $5.89 a share, compared with a 2007 profit of $3.3-billion of $9.21. The numbers reflect losses of $4.9-billion or $13.45 a share on the run-off of the bank's structured credit business.
"While conditions across the financial services industry were challenging in 2008, we took broad-based actions across CIBC to manage through the environment," CIBC president and chief executive officer Gerry McCaughey said in a news release.
The bank's Tier One capital ratio at the end of the fourth quarter was 10.5 per cent, up from 9.7 per cent a year earlier.
"As a result of the actions we took to reduce risk and strengthen our capital position, we are heading into 2009 with the strongest capital position among the major commercial banks in North America," CIBC president and chief executive officer Gerry McCaughey said in a news release. Analyst John Aiken at Dundee Securities slapped a "sell" recommendation on the bank's shares, having previously rated them "hold."
"The fourth quarter demonstrated way too many moving parts to have any confidence in limiting future writedowns," Mr. Aiken said in a note to clients.
He calculated that changes to accounting meant "gross charges" related to the run-off businesses were about $1.3-billion - a little higher than Bay Street expectations - rather than under $400-million as CIBC reported.
"We are not waging into the debate as to what valuation and/or accounting methodology is correct," Mr. Aiken said in his note to clients. "All we are trying to illustrate is that significant, material economic losses and writedowns are still a potential for CIBC, regardless of accounting treatment."
By contrast, analyst André-Philippe Hardy at RBC Dominion Securities Inc., said the results were "positive," with core earnings per share coming in at $1.57, or 13 cents more than he had forecast.
"Better-than-expected wholesale results offset weaker-than-expected retail results," said Mr. Hardy, who rates the shares "hold." He, too, noted the new accounting methodology. "These changes in value are justifiable based on accounting standards, but they mask a decline in the market value of assets during the quarter," he said.
