CIBC targets U.S., sees contribution nearly doubling to 17% by 2020
Canadian Imperial Bank of Commerce set its sights Wednesday on nearly doubling the contribution that its U.S. businesses will make to earnings over the next three years, to 17 per cent by 2020 from approximately nine per cent this year.
“Everyone’s always said, ‘Well, you’re too Canadian focused,’” CIBC president and chief executive Victor Dodig said during an investor day presentation. “Our goal is to diversify outside of Canada.”
The renewed focus south of the border comes amid a steady expansion in the U.S. economy and as new lending rules are coming for the Canadian housing market, an area where CIBC has outpaced competitors in mortgage growth.
CIBC’s approximately US$5billion acquisition of Chicagobased PrivateBancorp Inc. and its subsidiary, The PrivateBank, give Canada’s fifth-largest lender “a significant opportunity to grow in the United States,” Dodig said.
That transaction closed in June.
CIBC reported in its latest quarterly earnings that net income from U.S. commercial banking and wealth management shot up 133 per cent year-over-year, to $203 million from $87 million. Total reported net income for CIBC’s fiscal fourth quarter was $1.16 billion, up 25 per cent from the same three months of 2016.
According to CIBC’s investor day presentation, the percentage of earnings from its Canadian personal and small business banking operations is targeted to drop to 45 per cent by 2020 from 48 per cent this year, and the contribution of capital markets to earnings (excluding the U.S.) will shrink to 13 per cent from 19 per cent over the same period. CIBC is projecting the earnings share of its Canadian commercial banking and wealth management segment to increase to 25 per cent by 2020 from 24 per cent this year.
Expectations for CIBC’s U.S. operations are being heightened as Canadian banks are bracing for the new B-20 guidelines for uninsured mortgages, which come into effect in January, and are anticipated to put a bit of a damper on lending. The changes are also expected to hit hardest at CIBC, which has led its fellow Big Five banks in total mortgage growth over the past year, according to National Bank Financial.
“The implementation of revised B-20 guidelines (i.e. higher stress test) are expected to negatively impact mortgage originations next year (from 5-12 per cent based on management guidance), with (CIBC) targeting near top of the range,” said Scott Chan, analyst at Canaccord Genuity.
Christina Kramer, senior executive vice-president and group head of personal and small business banking at CIBC, said the bank may see a “bit of a dip” with the B-20 guidelines.
“Consumers adjust to the new regulatory environment,” Kramer said Wednesday. “But there might be a lift potentially after that. At this point, our forecast is that it will still be a robust market in the upcoming year.”
CIBC has also set a target of a 52 per cent efficiency ratio by the fourth quarter of 2022, an intended improvement from the 56.5 per cent for the fourth quarter of 2017. And, after the PrivateBancorp deal, CIBC said it would focus its spending on organic growth.
“We’re going to focus on bringing on good bankers, but more importantly going deeper with our existing clients and bringing on more clients,” Dodig said. “And we think that organic driver of growth is the most important driver ... and the most sensible use of capital.”