‘Adequate buffers’ help CIBC manage mortgage portfolio

Bank executives try to alleviate concerns about impact of policies, regulations

I will leave (real estate policy) to our regulators. Our job is to manage within that framework. VICTOR DODIG, CIBC chief executive

TORONTO Canadian Imperial Bank of Commerce executives sought to reassure analysts Thursday that a growing mortgage book won’t translate into problems as policy and regulatory changes aim to take the wind out of Canada’s hot housing market.

Following on the heels of Royal Bank of Canada this week, CIBC posted third-quarter adjusted earnings that beat analyst expectations. The results at the smallest of the country’s Big Five banks included a 13 per cent increase in mortgage balances to $197 billion.

CIBC originated $16 billion of uninsured mortgages, an eight per cent year-over-year increase, with more than half going to clients in the greater Toronto and greater Vancouver markets, where housing prices have seen some of the steepest increases in recent years.

Laura Dottori-Attanasio, CIBC’s chief risk officer, said newly originated and existing uninsured mortgages in those markets have lower loan-to-value ratios than the national average, which should provide protection in the event that house prices fall.

“We do have adequate buffers to sustain a drop in housing prices,” she said during a morning conference call with analysts.

Dottori-Attanasio noted that the bank’s uninsured mortgages in Toronto and Vancouver have lower delinquency rates of over 90 days than the Canadian average.

“Our late-stage delinquency rates, across all these portfolios, continued to remain low and stable, with Vancouver and Toronto performing significantly better than our Canadian average,” Dottori-Attanasio said, but acknowledged that the picture could change if the economy slows and Canadians lose their jobs.

“So long as unemployment stays as is, we would not expect to see, if you will, any real change in delinquencies or to loan losses,” she said. “If house prices do come off, we need our borrowers to continue to have their jobs to service their loans. But in the event we find ourselves taking on assets, we continue to have a good buffer as it relates to that loan-to-value.”

On the conference call, CIBC chief executive Victor Dodig declined to weigh in on the need for ongoing policy and regulatory changes to rein in hot real estate markets.

“I will leave that to our regulators,” Dodig said. “Our job is to manage within that framework.”

A foreign buyers’ tax slowed brisk sales and calmed house price escalation in Vancouver, at least temporarily, and is having a similar impact in Toronto. A proposed new regulatory measure would require all uninsured mortgages to qualify at interest rates 200 basis points above their contracted rate.

CIBC executives said the proposal would not have a big impact on the bank. Under the current rules, 75 per cent of the bank’s new mortgages already qualify at a higher rate. Even with the proposed new rules, more than 90 per cent would still qualify, they said.

On Thursday, CIBC boosted the bank’s quarterly dividend by three cents, or two per cent, marking the eighth increase in the past 10 quarters, after posting adjusted cash earnings per share of $2.77 for the period ended June 30. Analysts had been expecting cash EPS of $2.66.

Net income was $1.1 billion, compared to $1.4 billion a year earlier. But, after one-time adjustments including legal and integration costs linked to the US$5 billion acquisition of Chicago-based Private Bancorp in June, the profit was four per cent higher than in the corresponding period a year earlier. The overall performance was buoyed by the bank’s Canadian retail, business, and wealth management divisions.

“Our strong results this quarter reflect solid contributions from our strategic business units, as well as our acquisition,” Dodig said in a statement.