CIBC Joins Other Canadian Banks in Feeling Capital-Markets Pain

(Bloomberg) -- Difficult markets have taken a toll on Canadian Imperial Bank of Commerce.

Trading revenue at the company fell 18 percent to C$341 million ($259 million) in the fiscal first quarter from a year earlier, when it had one of its best trading quarters in the past two years.

The decline pared earnings in CIBC’s capital-markets business by 38 percent, contributing to an 11 percent decline in overall profit for the first quarter to miss analysts’ estimates. CIBC’s struggles were similar to those at Canada’s other large lenders, including Royal Bank of Canada, Bank of Nova Scotia and Bank of Montreal, all of which posted earnings declines in their capital-markets divisions in a period executives described as challenging with significant market volatility.

Key Insights

  • The capital-markets division had earnings of C$201 million, down from C$322 million a year earlier, due to lower revenue from equity derivatives and interest rate trading businesses and higher loan-loss provisions.
  • CIBC pushed deeper outside Canada with its takeover of Chicago-based PrivateBancorp in 2017. That business is part of CIBC’s U.S. commercial-banking and wealth-management division, which posted earnings of C$168 million in the fiscal first quarter, up 25 percent from a year earlier.
  • Last November, CIBC executives cited “competitive pressures on deposits” for a surprise decline in fourth-quarter margins in its U.S. commercial banking and wealth management division. That continued in the first quarter, as margins were 3.32 percent in the fiscal first quarter, down from 3.34 percent in the prior quarter.
  • The lender’s biggest division, Canadian personal and small-business banking, benefited from industry-leading mortgage growth for years until slowing in the second half of fiscal 2018. CIBC had C$201 billion of mortgage balances in the first quarter, down from C$203 billion a year earlier.

Market Reaction

  • CIBC shares have fallen 3.8 percent in the 12 months through Wednesday, compared with a 0.9 percent decline for the eight-company S&P/TSX Commercial Banks index.

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  • First-quarter net income fell 11 percent to C$1.18 billion, or C$2.60 a share, from C$1.33 billion, or C$2.95 a share, a year earlier. Adjusted per-share earnings totaled C$3.01, missing the C$3.09 average estimate of 12 analysts in a Bloomberg survey.
  • CIBC raised its quarterly dividend 2.9 percent to C$1.40.
  • Read more about CIBC’s quarterly results here.

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