CIBC surprises by beating TD with strong Q4 results

Domestic retail, U.S. unit are big drivers in lifting lender’s stock and earnings

Canadian Imperial Bank of Commerce rose the most in six months after posting fourthquarter profit that beat analysts’ expectations, while larger rival Toronto-Dominion Bank fell as earnings disappointed investors.

CIBC, Canada’s fifth-largest lender by assets, gained 2.3 per cent at 10:06 a.m. in Toronto, the biggest intraday gain since May 29, making it the best performing Canadian bank stock on Thursday. It ended that day at $118.14, up 2.9 per cent. Toronto-Dominion, the nation’s largest lender, fell as much as 3.5 per cent, the most intraday since March 10. It finished the day at $73.24, down 2.4 per cent.

“CIBC came in well ahead of expectations on the back of exceptionally strong domestic retail and a better than forecast contribution from its new U.S. platform,” Barclays Plc analyst John Aiken said in a note. Given the negative sentiment on the stock, including short sellers, one would expect to see solid outperformance on CIBC as the market begins to re-rate the stock, he said.

CIBC net income for the quarter ended Oct. 31 rose 25 per cent to $1.16 billion from a year earlier, the Toronto-based bank said in a statement. Gains in commercial banking and wealth management, along with added contributions from its U.S. acquisitions of PrivateBank and Geneva Advisors LLC, helped lift earnings. Adjusted earnings, which exclude some items, were $2.81 a share, beating the $2.61 average estimate of 12 analysts surveyed by Bloomberg.

The major contributor to CIBC’s earnings continued to be its Canadian personal and small business banking division, which earned an adjusted quarterly profit of $623 million, up 11.3 per cent from a year earlier.

But it was CIBC’s U.S. commercial banking and wealth management unit that saw a major bump in profit, with net income for the quarter of $107 million — more than four times the $23 million reported during the same quarter a year earlier.

That reflected a full quarter of “strong performance” from The PrivateBank, after CIBC purchased its parent PrivateBancorp for roughly US$5 billion in June and rebranded it in September as CIBC Bank USA.

“U.S. commercial banking and wealth management continue to exceed our expectations ... The former PrivateBank showed one of its best quarters ever,” CIBC president and chief executive Victor Dodig told analysts on a conference call Thursday.

In contrast, Toronto-Dominion missed analysts’ expectations after posting an 18 per cent jump in quarterly profit to $2.7 billion from a year earlier. Adjusted profit was $1.36 a share, missing the average estimate of 11 analysts surveyed by Bloomberg by two cents.

“Q4 was a great quarter for TD and a strong finish to fiscal 2017,” said TD president and chief executive Bharat Masrani on a call with analysts.

TD’s U.S. retail business earned $776 million, up 11 per cent in the same quarter last year. However, that was down sequentially 13.9 per cent from the $901 million in the third quarter of this year.

Wholesale banking, which includes TD’s capital markets and investment banking business, earned $231 million in net income, down from $238 million a year ago.

Provisions for credit losses, or funds set aside for bad loans, for the quarter rose to $578 million compared with $548 million a year ago.

TD “disappointed on the back of a retracement in earnings in its U.S. retail segment,” Aiken told clients. “While far from a disaster, we are concerned that, with the strength of TD’s valuation over the past few months, the results (Thursday) could lead to some relative weakness as expectations become reset somewhat heading into 2018,” Aiken said in a separate note.

“Overall, we have a negative view on Q4 results,” RBC Capital Markets analyst Darko Mihelic said in a note on TD, citing weaker revenues and higher provision for credit losses, although efficiency was better than forecast.

Analysts may be seeing a loss of momentum from the third quarter, Toronto-Dominion CFO Riaz Ahmed said. “But from my perspective, I look at the year-overyear results and feel very good about the performance.”

(TorontoDominion’s) results could lead to some relative weakness ...