CIBC Misses Estimates as Mortgages, Net Interest Income Contract

(Bloomberg) -- Mortgage growth at Canadian Imperial Bank of Commerce ain’t what it used to be.

• Canada’s fifth-largest lender by assets was the mortgage king two years ago, when the expansion of its domestic home-loan book outpaced its rivals, thanks in part to a ramp-up of mobile mortgage specialists. CIBC is now seeing a contraction of its domestic mortgage book for the second straight quarter, with C$201 billion ($150 billion) in balances, down 1% from a year ago, as prices in once-hot markets such as Vancouver cool and tighter lending criteria affect borrowers.

Key Insights

• Three “big” non-performing commercial and corporate loans in different industries were blamed by CIBC executives for a spike in provisions in the fiscal first quarter. Provisions for the second quarter were C$255 million, compared with C$338 million in the previous three months and C$212 million a year earlier.
• National Bank of Canada analyst Gabriel Dechaine highlighted CIBC’s “unusual” mortgage trends in a May 12 note that suggested the bank should target more consistent growth patterns in this key area. “There are several factors to explain this unusual growth trend, such as ‘right-sizing’ of the mortgage-specialist force and above-average growth in the B.C./Vancouver market that is now exhibiting a sharp decline in transaction volumes,” he wrote.
• CIBC pushed deeper into the U.S. with its $5 billion takeover of PrivateBancorp in 2017 to help diversify and address investors’ concerns about the bank being “too Canadian.” The lender’s U.S. commercial-banking and wealth-management division, which includes the former PrivateBank operations, accounted for 12% of overall earnings at the bank.
• Still, Canadian banking remains CIBC’s stronghold and its biggest division, with the bank relying on domestic personal-and-commercial banking more than its larger rivals do. Earnings in the division fell 2.4% to C$570 million.
• The pace of interest income at CIBC has been slowing from its growth levels in 2018. The bank saw net interest income contract in the second quarter to C$2.46 billion, compared with C$2.6 billion in the first quarter and C$2.48 billion in the year-earlier period.

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  Market Reaction
• CIBC shares have risen 10% this year through Tuesday, compared with an 11% increase for the eight-company S&P/TSX Commercial Banks Index.

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• Second-quarter net income rose 2.2% to C$1.35 billion, or C$2.95 a share, from C$1.32 billion, or C$2.89 a share, a year earlier. Adjusted per-share earnings totaled C$2.97, missing the C$2.99 average estimate of 15 analysts in a Bloomberg survey.
• CIBC is the first Canadian bank to report results for the three months ended April 30. Canada’s six biggest lenders are expected to post earnings growth of 3% for the second quarter, the median of estimates compiled by Bloomberg Intelligence.
• Read more about CIBC’s quarterly results here.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve Dickson

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