CIBC wraps up Big Six earnings with solid beat
Lower provisions for possible sour loan
Canadian Imperial Bank of Commerce reported expectations-beating profits in its third quarter as the bank continued to lower provisions for potential sour loans amid the country’s economic rebound from the COVID-19 pandemic.
CIBC booked a profit of $1.73 billion, or $3.76 per share in the three months ended July 31, up from $1.17 billion, or $2.55 per share, in the same period a year earlier.
Adjusting for one-time items, the bank said it earned $3.93 per share, surpassing analyst expectations of $3.41 a share, according to Bloomberg data.
All of Canada’s Big Six banks reported better-than-expected profits, with Toronto-dominion Bank beating analyst consensus by the narrowest margin.
CIBC’S earnings got a lift as it continued to recover provisions for credit losses, which are funds that banks must hold in reserve to cover potential losses from loan defaults that were not as severe as anticipated earlier in the pandemic. CIBC released $99 million in provisions, compared to the $32 million it set aside in the second quarter.
Banks set aside billions at the outset of the pandemic last year to cover anticipated loans defaults due to job losses and business closures. But those sour loans were not as bad as expected, and rising vaccination rates and easing pandemic restrictions have allowed lenders to recover those funds, even as cases of the highly contagious Delta variant rise.
But further provision releases will depend on the “trajectory of the economic recovery,” chief risk officer Shawn Beber said on a conference call with analysts.
“You’ve seen us release performing provisions over the past three quarters,” Beber said. “If that trajectory is maintained, then we would expect to see more of our performing provisions be released in the coming quarters.”
Profit in CIBC’S Canadian personal and business banking division climbed 40 per cent to $642 million from the same period a year earlier, boosted by lower loanloss provisions, as well as a rebound bump in lending. Loan balances rose 10 per cent from last year, lifted by a jump in mortgage lending amid the heated housing market.
But the pandemic continues to weigh on credit cards as people stash away excess cash and forego borrowing. While customers are making more purchases on their credit cards than in previous quarters, balances — which charge higher interest fees — are expected to continue to be low.
“There is a bit of lag between the transaction volumes coming and the balances that are not yet building,” chief financial officer Hratch Panossian said in an interview. “At the same time, we’re focused on acquisition of new clients . ... We’re up significantly on new card applications and new accounts opened.”
Meanwhile, as deposits grew, the dollars seeped into investing — a trend seen across the Big Six banks this quarter. CIBC’S Canadian commercial banking and wealth management profit surged 47 per cent to $470 million from last year, largely boosted by lower provisions as well as rising commercial loan balances and higher fees. As equity market valuations soared, assets under management rose 19 per cent and assets under administration increased 20 per cent.
“We’re seeing CIBC keep pace with peers in the key mortgage category, (and) exceed many of them in the commercial category,” said National Bank of Canada analyst Gabriel Dechaine in a note to clients. He added that the bank is also showing progress in products “such as cards and personal loans that have lagged the economic recovery.”
Analysts were also watching for a slump in capital markets across the Big Six banks. Deal making raced at a torrid pace in the first half of the year, propping up
A BIT OF A LAG BETWEEN THE TRANSACTION VOLUMES COMING AND THE BALANCES THAT ARE NOT YET BUILDING.
bank earnings. But the slower summer months threatened to weigh on results.
CIBC capital markets net income grew 11 per cent to $491 million from last year on lower provisions, as well as higher underwriting and advisory fees, but down one per cent from the second quarter.
On the same day, CIBC also announced its commitment to reaching net-zero greenhouse-gas emissions in its operational and financing activities by 2050. The bank promised to deploy $300-billion in sustainable financing by 2030, plans to and interim targets to do so starting next year, and will begin reporting on key sectors next year.