Summary

  • CIBC is a leading North American financial institution with a market capitalization of $44 billion
  • CIBC provides a full range of financial products and services to 10 million personal banking, business, public sector and institutional clients in Canada, the U.S. and around the world
  • CIBC has approximately 44,000 employees dedicated to providing its clients with banking solutions for a modern world
  • The bank reported earnings in 2020 of $3.8 billion or $4.4 billion on an adjusted basis

CIBC0.jpg

Company Overview

CIBC (NYSE:CM, TSX:CM) is a leading North American financial institution with a market capitalization of $44 billion and a Basel III Common Equity Tier 1 (CET1) ratio of 12.1% as at October 31, 2020. Through its four SBUs – Canadian Personal and Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets – CIBC provides a full range of financial products and services to 10 million personal banking, business, public sector and institutional clients in Canada, the U.S. and around the world. CIBC has approximately 44,000 employees dedicated to providing its clients with banking solutions for a modern world, delivering consistent and sustainable earnings growth for its shareholders, and giving back to its communities.

CIBC1.jpeg

Financial Highlights

The bank reported earnings in 2020 of $3.8 billion or $4.4 billion on an adjusted basis, down 26% and 18% from last year, respectively, primarily as a result of the economic impact of the COVID-19 pandemic. The company's capital position remained very strong, with a CET1 ratio of 12.1%, underscoring the strength of its balance sheet as the company focus on growing its business in an uncertain economic environment.1

To assess its earnings growth, the company monitor its earnings per share (EPS). The company's through-the-cycle target is an average annual EPS growth of 5% to 10%. In 2020, against a backdrop of a challenging economic environment, reported and adjusted diluted EPS declined by 27% and 19%, respectively. In 2020, its bank helped over 500,000 clients with payment relief, and advice when they needed it most.

At the end of 2020, its Basel III CET1 ratio was 12.1%, well above the current regulatory target set by the Office of the Superintendent of Financial Institutions (OSFI) of 9.0%. In response to the COVID-19 pandemic, OSFI directed that all federally regulated financial institutions halt share buybacks and dividend increases until further notice.

The company's ability to meet its financial obligations is measured through the LCR ratio. It measures unencumbered high quality liquid assets (HQLA) that can be converted into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario. The LCR standard requires that, absent a situation of financial stress, the value of the ratio be no lower than 100%.

The North American outbreak of COVID-19 that occurred in the first quarter of 2020 represented a major shock to CIBC’s principal markets. Efforts to contain the pandemic in the spring of 2020, including the implementation of public health measures such as travel restrictions and physical distancing, resulted in a steep economic decline in Canada and the U.S., as governments on both sides of the border announced unprecedented fiscal and monetary stimulus measures to bolster the economy. The subsequent relaxation of these public health measures resulted in an uneven recovery that continues to leave both countries with a considerable gap to economic levels at the beginning of the year. Service industries in which physical distancing posed a major impediment were particularly hard-hit, along with the energy sector that faced a soft global demand environment. Impacts on household and business credit quality were cushioned but not eliminated by large-scale government assistance measures and deep cuts in interest rates in Canada and the U.S., with lower rates resulting in reduced lending margins in the banking system. In Canada, household credit growth slowed as sharply weaker non-mortgage credit demand offset growth in mortgages. Lower consumer spending had a negative impact on retail transaction volumes. Housing prices remained firm in most markets. Business credit demand picked up sharply early in the pandemic for liquidity needs, but then decelerated over the balance of the year on slower economic activity, while capital markets activity was boosted by strong corporate and government bond issuance. U.S. equity markets reached new highs in the summer, while Canadian equity markets recovered significantly from the initial lows.

CIBC2.jpg

Third Quarter 2021 Results

August 26, 2021; CIBC announced its financial results for the third quarter ended July 31, 2021.2

Canadian Personal and Business Banking reported net income of $642 million for the third quarter, up $185 million or 40% from the third quarter a year ago mainly due to lower provisions for credit losses and higher revenue, partially offset by higher expenses. Adjusted pre-provision, pre-tax earnings were up $98 million or 12% from the third quarter a year ago mainly due to higher revenue driven by robust volume growth and higher fee income, partially offset by higher expenses.

Canadian Commercial Banking and Wealth Management reported net income of $470 million for the third quarter, up $150 million or 47% from the third quarter a year ago, primarily due to higher revenue and a reversal of loan loss provisions in the current quarter, partially offset by higher expenses. Pre-provision, pre-tax earnings were up $96 million or 19% compared with the third quarter a year ago, primarily due to higher fee revenue and strong volume growth in commercial banking, while wealth management revenue benefitted from significant growth in asset balances driven by market appreciation, record mutual fund sales, and an increased level of investment activity by clients. Higher expenses were primarily driven by revenue-based variable compensation reflecting favourable business results.

U.S. Commercial Banking and Wealth Management reported net income of $266 million for the third quarter, up $206 million or 343% from the third quarter a year ago. Excluding items of note, adjusted net income was $279 million, up $204 million or 272% from the third quarter a year ago, due to a reversal of loan loss provisions in the current quarter and higher U.S. dollar revenue, partially offset by the impact of foreign exchange translation. In U.S. dollars, adjusted pre-provision, pre-tax earnings of US$228 million were up US$32 million or 16% from the third quarter a year ago due to higher revenue, primarily driven by volume growth and higher fees, partially offset by higher employee-related expenses.

Capital Markets reported net income of $491 million for the third quarter, up $48 million or 11% from the third quarter a year ago, primarily due to a reversal of provision for credit losses, partially offset by higher expenses. Pre-provision, pre-tax earnings were down $48 million or 7% from the third quarter a year ago, due to lower global markets trading revenue and higher expenses, partially offset by higher revenue from corporate and investment banking and its direct financial services business.

Credit quality

Provision for credit losses was a reversal of $99 million, compared with a provision for credit losses of $525 million from the third quarter a year ago. Provision reversals on performing loans were recognized across all strategic business units (SBUs) in the current quarter mainly resulting from an improvement in its economic outlook, while the same quarter last year included a provision for credit losses across all SBUs due to an unfavourable change in its economic outlook relating to the early stages of the COVID-19 pandemic. Provision for credit losses on impaired loans was also down compared with the third quarter a year ago, due to lower impairments net of reversals in all SBUs except Corporate and Other.

References

  1. ^ https://www.cibc.com/content/dam/about_cibc/investor_relations/pdfs/quarterly_results/2020/ar-20-en.pdf
  2. ^ https://www.cibc.com/content/dam/about_cibc/investor_relations/pdfs/quarterly_results/2021/q321newsrelease-en.pdf
Tags: US:CM CA:CM
Created by Asif Farooqui on 2021/11/15 14:21
     

Become a Contributor

If you follow a company closely and would like to share your knowledge, we would love your contributions. Register Now and start editing!

Recently Modified

This site is funded and maintained by Fintel.io