CIBC loan losses could double in a recession
Bank says it has stress-tested its lending portfolio
• As t he big banks begin to feel the effects of the global oil rout, Canadian Imperial Bank of Commerce has stress- tested its loan books to gauge the impact if Canada slips into a countrywide recession.
“If we went into a recessionary type environment… we could see ourselves doubling our loan losses,” Laura Dottori- Attanasio, chief risk officer at CIBC, said on a conference call with analysts Thursday to discuss the bank’s financial results for the first quarter, which ended Jan. 31.
CIBC executives followed Royal Bank of Canada officials this week in discussing the early impact of low commodity prices, particularly oil and gas, on the banks’ business and consumer portfolios.
CIBC’s impaired energy loans were essentially flat in the quarter, at $ 128 million, after more than tripling in the fourth quarter of last year.
Even with the lift last year, gross impaired loans represent less than two per cent of the bank’s outstanding loans to the oil and gas sector, according to John Aiken, an analyst at Barclays Capital. However, he said investors are anticipating a bigger impact from the downturn, particularly as global banks have begun to take large provisions for losses in the face of low commodity prices.
“We have seen increasing skepticism in the market regarding energy reserving and the fact that CIBC’s provisions did not increase, admittedly after a stronger-than- peer lift in Q4, makes it hard for us to believe that the market will give it a pass this quarter,” Aiken said in a note to clients.
On the conference call, CIBC executives said the Canadian bank tends to hold a higher proportion of investment- grade loans to the oil and gas sector than U.S. lenders, which also extend more loans in the ancillary oil services industry.
“So we have very good quality in our oil and gas book,” said Dottori- Attanasio.
Despite the gloom in the oilpatch, both CIBC and Toronto-Dominion Bank hiked dividends on Thursday.
CIBC, Canada’ s fifthlargest bank, with a focus primarily on domestic operations, raised the quarterly dividend by 3 cents to $ 1.18, the eighth increase in the past nine quarters.
TD, the country’s secondbiggest bank, with a large retail franchise in the United States, boosted its dividend by eight per cent to 55 cents a share, a larger increase than some analysts had been expecting.
Amid fears of sluggish economic growth, and debtburdened consumers, the profits keep rolling in from some banking divisions. Increases contributed by CIBC’s retail and business banking operations, for example, helped push net income for the first quarter to $ 982 million ($ 2.43 per share), up from $923 million ($2.28 per share) in the same period a year ago.
CIBC’s earnings excluding a pair of usual items rose to $ 2.55 per share, handily beating analyst expectations of $2.38 for the quarter.
TD’s net income climbed nearly eight per cent to $2.22 billion ($ 1.17 per share) in the first quarter, helped by gains in its Canadian and U.S. retail banking operations and a stronger U.S. dollar. The per- share profit after excluding special items was $ 1.18 a share, just missing the consensus analyst estimate.
Bharat Masrani, chief executive of TD, said he remains confident his bank can weather the challenging times ahead. Overall, “credit quality remains strong,” he told analysts.