Friday, December 08, 2006

CIBC Q4 2006 Earnings

  
BMO Capital Markets, 8 December 2006

CIBC reported fourth quarter cash earnings of $791 million, or $2.34 per share, compared to $634 million, or $1.87 per share, in the last quarter, and $698 million, or $2.07 per share, in the fourth quarter of last year. This quarter included an AcG-13 charge, a $25 million reversal of general allowance and various tax recoveries, which when combined added $0.32 to earnings. Excluding unusual items from all three quarters, the appropriate operating comparison is $2.02 per share this quarter, $1.70 last quarter, and $1.45 in the fourth quarter of last year. Results were well ahead of our estimates of $1.59.

This was an outstanding quarter, though we would question whether the current earnings levels will be repeated through all of 2007. CIBC World Markets had an excellent quarter buoyed by great M&A and underwriting results and what appeared to be somewhat low expense accruals. Retail Markets also reported its best quarter ever, and both market share and loan loss trends improved. We are raising our cash EPS estimates for 2007 and 2008 to reflect higher contribution from the 'high multiple' retail businesses.

This quarter showed that cause and effect in banking are sometimes not coincident. CIBC took its medicine over the past four quarters - controlling loan growth, shifting from unsecured to secured lending, tightening expense management, and this quarter, the benefit of these actions became more apparent. Loan losses declined, revenue stabilized and expenses remain well controlled. We believe that there is more to come in 2007.

Retail Markets reported cash earnings of $504 million, up from $490 million last quarter and $352 million in the same quarter of last year. This quarter and last quarter included tax recoveries. Exclusive of this, operating results were up 5% compared to the third quarter.

Equally positive was the significant improvement in loan losses. In mid October, we published a report (Earnings Growth from Loan Loss Reductions and First Caribbean) suggesting that CIBC's quarterly loan losses in unsecured lending were elevated by $40-50 million, and that this would translate into above average momentum over the next 1-2 years. Clearly, the turn has occurred quicker than expected.

World Markets reported an exceptionally strong quarter, with earnings of $220 million, up 15% from an already strong third quarter. Unlike last quarter, which was largely helped by higher than normal merchant banking gains, this quarter saw solid contributions from all areas of the business.

The Corporate segment reported earnings of $100 million, including a $25 million reversal of general allowance and a $66 million income tax recovery. Excluding these items (which produced the majority of the $0.32 removed for operating comparisons) the segment was close to breakeven, and in line with a long-term run rate.

We are raising our 2007 cash EPS estimates to $7.65 from $7.25 and our 2008 estimates to $8.10 from $7.70. We note that the 'street' estimate for 2007 was $7.10 before this quarter, so a meaningful shift in market expectations is warranted. What is particularly compelling on the CIBC story is that the earnings revisions will come from the 'highest multiple' part of the bank - the domestic retail operations.

The market will need to consider what the right multiple is to apply to CIBC's earnings. We note that in 2006, 79% of CIBC's earnings came from retail businesses. Furthermore, with the acquisition of Barclay's stake in First Caribbean, the bank will have developed a credible non-Canadian growth vehicle that produces about 8% of annual earnings. CIBC has become a high quality, high-ROE bank with stable and solid franchises and a strong balance sheet. We are raising our target price to $104 from $94, based on an average P/E. We are maintaining our Outperform rating.
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Scotia Capital, 8 December 2006

Fourth Quarter Earnings Strong

• Canadian Imperial Bank of Commerce (CM) cash operating earnings were $2.02 per share, a 39% increase versus $1.45 per share a year earlier, better than expected due to lower loan loss provisions, strong trading revenue and operating performance at CIBC World Markets, and lower operating costs.

• Lower non-interest expenses are a major driver to earnings and are more than compensating for revenue weakness at this point in CM's operating cycle. Revenue growth remains the bank's biggest challenge in the medium- to long-term. The bank has reduced significantly the risk in its retail loan portfolio as reflected in the decline in retail loan losses.

• Reported cash earnings were $2.34 per share which included tax related adjustments and a general reserve reversal (highlighted in Exhibit 1).

• Cash operating ROE was 28.3% versus 24.9% in the previous quarter and 24.2% a year earlier.

• The bank did not increase its dividend this quarter; however we would expect a solid dividend increase next quarter, post the close of the FirstCaribbean acquisition. The bank's payout ratio has fallen below its target range of 40%-50%.

Fiscal 2006 Operating Earnings Increase 19%

• Fiscal 2006 cash operating earnings increased 19% to $6.90 per share from $5.78 per share in 2005. Cash operating ROE for the fiscal year was 25.1% compared with 19.9% in fiscal 2005.

• Strong earnings growth in fiscal 2006 was driven by a 4% reduction in non-interest expenses and a 17% decline in loan loss provisions, which offset the weak 1% decline in total revenue.

Retail Markets Cash Earnings Increase 22%

• Retail Markets Q4 cash earnings increased 22% to $478 million driven by a 4% reduction in expenses and a 34% decline in loan loss provisions which offset the lower net interest margin and 1% decline in revenue.

• Retail loan losses declined 34% to $132 million from $201 million a year earlier (excluding the $23 million adjustment to the provision for credit losses in the retail portfolios in Q4/05) due to an improving trend in write-offs in the personal loan portfolios and net recoveries in the agriculture and small-business portfolios. The bank indicated that it expects the improved trend in personal loan write-offs to continue.

• Residential loans administered increased 7% to $99.7 billion with credit card loans administered up 8% to $11.7 billion. Personal loans increased a modest 2%. Secured balances were up 26% while unsecured balances declined 18%, reflecting a major shift in the bank's retail loan risk profile.

• Deposit and payment fees were $195 million versus $201 million in the previous quarter and $197 million a year earlier. Securitization revenue was $128 million versus $124 million in the previous quarter and $114 million a year earlier. Card fees were $74 million compared with $61 million in the previous quarter and $73 million a year earlier.

• Mutual fund revenue increased to $190 million from $188 million in the previous quarter and $181 million a year earlier. Mutual Fund assets (IFIC) increased 9% YOY to $47.5 billion.

• Retail Markets fiscal 2006 cash earnings increased 15% to $1,782 million compared with $1,551 million in fiscal 2005 with modest average loan and deposit growth of 1% and 2%, respectively.

Canadian Retail NIM at 3.42%

• Canadian retail NIM declined 6 bp QOQ and 11 bp YOY to 3.42%.

Retail Market Share Losses Moderate Sequentially

• On a sequential basis, retail market share loss seemed to moderate, with residential mortgages market share unchanged at 14.2%, consumer loans market share down 10 bp at 9.9% and consumer deposits up 10 bp at 19.0%. Market share in cards outstanding was down 10 bp QOQ at 18.1% with card volumes market share increasing 70 bp to 27.2%.

CIBC World Markets Earnings Strong - Expenses Decline 9%

• CIBC World Markets cash earnings increased 25% to $196 million (excluding gains on the sale of GPI and SDM investments and a number of one-time expense items in Q4/05). Cash earnings were driven by a 9% decline in non-interest expenses, with revenue declining 3%.

• For the fiscal year, CIBC World Markets cash earnings declined 8% to $605 million from $656 million in fiscal 2005 with revenue for the year declining 11% and expenses declining 7%.

Trading Revenue High

• Trading revenue (excluding variable interest entities) was relatively high at $236 million versus $209 million in the previous quarter and $194 million a year earlier.

• Equities trading revenue (excluding variable interest entities) was particularly high in the quarter at $89 million versus $53 million in the previous quarter and $66 million a year earlier.

• Trading revenue for fiscal 2006 increased 8% to $881 million from $814 million in fiscal 2005.

Capital Markets Revenue Solid

• Capital markets revenue was solid at $374 million versus $344 million in the previous quarter and $390 million a year earlier.

• Underwriting and advisory fees increased 14% to $168 million while commissions on securities transaction declined 15% to $206 million.

• Fiscal 2006 capital markets revenue declined 8% to $1,502 million from $1,639 million a year earlier.

Security Gains

• Security gains were $25 million or $0.05 per share versus $40 million or $0.08 per share in the previous quarter and $62 million or $0.12 per share a year earlier.

• Gains from the sale of loans, equity-accounted investments and limited partnership investments were $72 million this quarter versus $60 million in the previous quarter and $28 million a year earlier.

Unrealized Surplus

• Unrealized security surplus increased to $142 million in the fourth quarter versus a deficit of $25 million in the previous quarter and a surplus of $51 million a year earlier.

• The bank's investment in limited partnerships has a fair value to book value surplus of $374 million versus $366 million in the previous quarter and $272 million a year earlier.

Operating Leverage 3%

• Operating leverage in the quarter was 3% with revenues (TEB) increasing 1% to $2,977 million and non-interest expenses declining 2% to $1,884 million.

• The bank indicated that it expects expenses to be flat in 2007 from Q4/06 levels.

• The bank also indicated that it hopes to regenerate revenue growth during 2007, which remains a challenge.

Productivity Ratio

• The productivity ratio in the quarter was 63.3% versus 64.9% in the previous quarter and 64.9% a year earlier.

• Productivity ratio for fiscal 2006 improved to 64.2% versus 66.1% a year earlier.

Loan Loss Provisions Low at 34 bp

• Specific loan loss provisions (LLPs) declined to $131 million (excluding a $39 million general allowance reversal) or 0.34% of loans compared with $152 million or 0.40% of loans in the previous quarter and $197 million or 0.53% of loans a year earlier.

• Specific LLPs in the credit card portfolio have remained relatively stable over the last five quarters with the LLPs in personal and Student Loans portfolio on a downward trend.

Reducing 2007 LLP Estimate

• For the fiscal year, specific LLPs were $612 million or 0.40% of loans versus $733 million or 0.50% of loans in the previous year. We are reducing our 2007 LLP estimate to $600 million or 0.39% of loans from $700 million or 0.47% of loans based on reduced risk in the unsecured personal loan portfolio that has some seasoning and evidence of a decline in provisions. Our 2008 LLP estimate is $700 million or 0.47% of loans.

Impaired Loans

• Gross impaired loans (GILs) continued to decline in the quarter to $630 million from $747 million in the previous quarter and $949 million a year earlier.

• Net impaired loans were negative $814 million versus negative $835 million in the previous quarter and negative $689 million a year earlier.

Loan Formations - Modest and Stable

• Gross loan formations were $308 million in the fourth quarter versus $329 million in the previous quarter and $439 million a year earlier. Net loan formations were $135 million versus $128 million in the previous quarter and $233 million a year earlier.

Tier 1 Ratio

• Tier 1 ratio improved to 10.4% this quarter versus 9.6% in the previous quarter and 8.5% a year earlier. The FirstCaribbean acquisition is expected to close in December 2006, reducing the Tier 1 capital ratio by 50 bp and TCE-to-RWA ratio by 70 bp to 7.0%.

• The common equity to risk-weighted assets (CE/RWA) ratio was 8.7% compared with 8.0% in the previous quarter and 7.2% a year earlier. Total risk-weighted assets declined to $114.7 billion versus $117.0 billion in the previous quarter and $116.3 billion a year earlier.

Earnings Estimates

• We are increasing our 2007 earnings estimate to $8.00 per share from $7.00 per share to reflect our lower loan loss provision estimate, low cost structure, and some potential for better revenue performance. We are introducing our 2008 earnings estimate at $8.65 per share per share.

Increasing Target Price

• We are increasing our 12-month share price target to $115 from $105 to reflect the higher earnings level. Our share price target represents 14.4x our 2007 earnings estimate and 13.3x our 2008 earnings estimate Upgrading CM to 2-Sector Perform;

Downgrading National Bank of Canada to 3-Sector Underperform

• We are upgrading CM to a 2-Sector Perform from a 3-Sector Underperform due to higher earnings and share price target and the significant reduction in risk in the retail loan portfolio, and the low level of expenses.

• Revenue weakness remains a challenge, although it may not cause earnings pressure in the near term, medium term concerns persist.

• In conjunction with CM's upgrade, we are downgrading National Bank (NA) to a 3-Sector Underperform due to a lower earnings growth outlook than the bank group, continued concerns regarding the economic prospects in Central Canada and NA's concentration in that region, and the bank's earnings dependency on security gains and trading revenue. In addition, NA's earnings stream has been the least impacted by the appreciation of the CAD. Thus, a stable CAD would tend to create higher relative earnings momentum for the bank group.

• Our 2007 and 2008 earnings estimates for NA remain unchanged at $5.05 per share and $5.35 per share, respectively. Our share price target for NA remains unchanged at $77. Simply, NA has a lower expected return than CM.

• We remain overweight the Bank Group and have no Sell recommendations on an absolute return basis.
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The Globe and Mail, Andrew Willis, 7 December 2006

Canadians' love affair with credit cards helped lift Canadian Imperial Bank of Commerce to a record $819-million quarterly profit, as the bank continued to rebound from last year's Enron debacle.

Strong performance from credit cards and other retail banking lines, along with an impressive showing from its investment bank and minimal loan losses, meant CIBC's fourth-quarter profit was $2.32 a share, up 13 per cent from the same quarter last year.

CIBC's Aerogold card and other forms of plastic have long been market leaders — the bank enhanced its air miles rewards program last month — and of late, the bank has been lending more, while losing less money on clients who default on their debts.

CIBC clients had $11.7-billion on their cards at the end of October, up $900-million from the end of 2005. Credit card loan losses have declined to less than 3 per cent of the portfolio in the last quarter, after peaking at more than 4.5 per cent in 2004. Where it once looked to investment banking for half its earnings, CIBC now earns 72 per cent of its profit from domestic retail banking, which includes credit cards. Sonja Baxendale, head of retail banking, said she plans a summer marketing campaign to both increase the number of cards in circulation and give larger spending to creditworthy clients. She added that the bank recently started a program to help clients better manage their personal debt.

With an annual profit of $2.6-billion, compared with a $32-million loss in 2005 when the bank paid more than $2-billion to settle Enron-related lawsuits, CIBC's earnings were well ahead of analysts' estimates. “The great news was retail, where loan losses declined and market share stabilized,” said Ian de Verteuil of BMO Nesbitt Burns. While a number of analysts said CIBC's results are sustainable, there are questions about where chief executive officer Gerry McCaughey will find new customers, after focusing on cutting costs and rebuilding the balance sheet during his first year on the job. “CIBC has materially reduced its risk profile in the last few years but we believe potential revenue growth has been sacrificed,” said analyst AndrĂ©-Philippe Hardy at Merrill Lynch.

The bank's brokerage arm also faces an interesting employee retention challenge in coming months, as compensation handcuffs come off some of its 1,500 stockbrokers, chiefly those who joined the firm five years ago from Merrill Lynch.

The former Merrill brokers received a five-year retention package worth a total of $270-million.

With the incentives ending this month, rivals are trying to entice talent to their sales networks.

Its ability to sell securities of all shapes and sizes helped CIBC's investment banking division, CIBC World Markets Inc., turn in $218-million of profit in the fourth quarter, up from $190-million in the previous quarter, on the back of strong trading and deal making, which bank executives projected would continue this year.

“For those who thought the CIBC World Markets franchise has been weakened, this is a good wake-up call,” said a report from Mr. Verteuil.

The investment dealer is achieving these results while paying employees less. RBC Dominion Securities bank analyst James Keating noted: “Incentive compensation was 64 per cent of related revenues, below the 67-per-cent year-to-date average.”
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Financial Post, Duncan Mavin, 7 December 2006

There is a strategy beyond cost-cutting at Canadian Imperial Bank of Commerce, and it involves revenue generation, acquisitions and increased dividends.

The bank turned in record fourth-quarter performance Thursday and saw its stock price hit a record high of $94.80 on the Toronto Stock Exchange, too.

"This was a very strong quarter and it capped off what was a solid year overall for CIBC," chief executive Gerry McCaughey said in an interview Thursday. "We made progress in areas that are key to our future and this positions us well in 2007."

CIBC’s message in 2006 was focused on $250-million of targeted cost savings and some observers wondered where the revenue growth would come from.

Yet Mr. McCaughey is adamant that his bank is about more than slashing expenses.

For instance, a big investment — the bank has not said how much — in "front line" technology will not only reduce costs in the long term, but will also help branch staff sell more products to customers, CIBC said.

Also, better risk management might have stymied loan growth in 2006, while reducing loan losses. But management says keeping a closer eye on credit risk should also position the bank for sustainable, consistent lending revenue in future years.

Furthermore, CIBC’s management is excited about what it says is a real growth engine about to come on line through its acquisition of FirstCaribbean International Bank.

CIBC announced in March that it had agreed to pay US$1.1-billion to double its existing stake in FirstCaribbean, which was formed in 2002 from the Caribbean businesses of United Kingdom-based Barclays Bank PLC and CIBC.

After a couple of unsteady years, FirstCaribbean produced better performance in 2005 — net income was up, to US$258-million, from US$89-million the previous year. The retail bank has 100 branches in 17 Caribbean countries. It is a full-service bank with 3,400 staff and 780,000 active accounts. CIBC expects to close the deal later this month.

Mr. McCaughey said CIBC will pay for the acquisition with cash, buying out Barclays’ share in the bank. The Caribbean bank will immediately add to CIBC’s results, adding 20¢ to earnings per share in 2007, according to management’s estimates.

And CIBC’s message doesn’t end there. During the cost-cutting period, the bank has lagged competitors in terms of dividend hikes. CIBC’s payout ratio for 2006 was 36.8%, below its own target of 40% to 50%.

But once the FirstCaribbean purchase is out of the way, the bank will get its dividend payments back on track, Mr. McCaughey said.

"We will be discussing dividend increases with our board early in 2007," he said.
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Financial Post, Duncan Mavin, 7 December 2006

Canadian Imperial Bank of Commerce delivered record fourth-quarter earnings Thursday on the back of cost savings that improved the profitability of its retail-banking division.

The bank announced net income for the quarter of $819-million, up from $728-million a year ago. Excluding one-time items, CIBC reported profit of $2 per share, compared to an average of most analysts’ forecasts of about $1.68 a share.

The results were "underpinned by the progress we made against our strategic priorities," including cost-cutting, chief executive Gerry McCaughey said.

Canada’s fifth-largest bank said it exceeded by about 9% its target of slashing expenses by $250-million in 2006. The savings have been made by reducing head count and cutting back on advertising spending and other administrative costs. The bank said it will look for further cost savings next year.

"While our progress in 2006 is encouraging, further improvements are required," Mr. McCaughey said.

UBS Investment Research analyst Jason Bilodeau said the bank turned in "strong numbers" with encouraging revenue trends. Also, the bank’s cost savings mean CIBC is "entering 2007 as a leaner, more-efficient platform, better able to compete for business and deliver more consistent earnings," he said.

There have been concerns among some banking-industry observers that CIBC’s strategy of cutting costs would restrict revenue growth — an impact of the belt-tightening strategy the bank’s management has acknowledged.

Edward Jones analyst Tom Kersting said there was essentially no increase in revenue compared to last year. "Their strategy for the year was to execute on lowering costs," he said. "They had a bloated cost structure compared to the other banks."

The bank delivered on bringing costs closer to those of other banks and continue to make savings in 2007. But, he said, CIBC now has to show longer term that it can "create engines for revenue growth."

Genuity Capital Markets analyst Mario Mendonca said CIBC’s loan growth is below the other big banks, while a 6% drop in the bank’s net interest margin — the difference between the banks lending and borrowing interest rates — was below his forecast of a 3% drop.

However, he said in a note that "flat" revenue was better than his expectation that revenue would decline 2% for the third-straight quarter, and the bank managed to hold on to market share in mortgages, consumer loans and consumer deposits.

Overall, the bank delivered solid results, with the lack of a fourth-quarter dividend hike the only disappointment, Mr. Mendonca said.

The bank’s retail-markets division reported net income for the fourth quarter of $501-million, up from $350-million last year. The improvement was largely a result of cost savings, including lower provisions for credit losses, which were down $92-million from the fourth quarter of 2005. Retail-markets revenue was $2-billion, down $17-million from last year. The bank said profitability at the unit improved 18% in 2006.

CIBC World Markets reported net income of $218-million for the fourth quarter, down from $328-million in 2005, when profits were boosted by one-time items worth $294-million.

The bank’s earnings for the year were $2.6-billion, compared with a loss of $32-million in 2005, when the bank was hit by a $2.4-billion payment related to its involvement in Enron litigation.
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Dow Jones Newswires, Monica Gutschi, 7 December 2006

Canadian Imperial Bank of Commerce has targeted another C$150-200 million in cost cuts for 2007, fresh from slashing its annual budget by C$272 million this year.

"There are many other initiatives in productivity that are going to be paying off in 2007," chief executive Gerry McCaughey said.

Toronto-based Canadian Imperial, the country's fifth-largest bank, had planned to reduce its annual expenditures by C$250 million in 2006 in order to bring its productivity in line with its peers.

The bank cut more than 900 jobs, consolidated some back-office operations and invested in new technology as it worked to become more efficient.

The efforts appeared to have paid off, as the bank reported Thursday it exceeded its target by C$22 million.

Officials said its productivity ratio of 64.1% in the fourth quarter was the lowest it has been since 1997.

But McCaughey said while the progress in productivity has been "encouraging," there was more to be done.

He said the bank expected its annual expenditures in 2007 to be flat with 2006, despite an expected C$150-200 million rise in salaries and inflation-related increases. That amount would be absorbed through technological investments that will be completed in 2007, and other initiatives.

Although the productivity measures in 2006 caused Canadian Imperial's revenues to fall slightly, McCaughey said that wouldn't be the case in 2007, noting he was expecting revenue to rise in the year.
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Bloomberg, Doug Alexander, 7 December 2006

Canadian Imperial Bank of Commerce, the country's fifth-largest bank, said profit rose 13 percent to a record, driven by salary cuts, lower taxes and higher revenue from mortgages and credit cards.

Net income for the fourth-quarter ended Oct. 31 was C$819 million ($713 million), or C$2.32 a share, compared with C$728 million, or C$2.06, a year earlier, the Toronto-based bank said today in a statement. Profit topped analysts' estimates, driving the stock to its biggest gain in 33 months.

Chief Executive Officer Gerald McCaughey has pared expenses in the past year by cutting almost 300 jobs and reducing professional fees, rents and salaries as revenue growth slows. McCaughey, who took over as CEO 16 months ago, surpassed his annual savings target of C$250 million.

``CIBC is doing quite well, with the hand that it's been dealt, by focusing on cutting costs,'' said Tom Kersting, an analyst with Edward Jones in St. Louis, who rates CIBC stock a ``hold'' and doesn't own any shares. The bank was ``seen as having a little more bloated of a cost structure than some of the other banks.''

Reduced expenses, lower taxes and fewer provisions for bad loans helped counter a slump in revenue from investment banking, brokerage and small business lending. Overall revenue fell 16 percent to C$2.89 billion, compared with C$3.42 billion a year earlier. Income taxes dropped 80 percent to C$87 million compared with C$436 million a year ago.

``Revenues are still declining,'' said John Kinsey, who helps manage $800 million at Caldwell Securities Ltd. in Toronto, including CIBC shares. ``You can't go on cutting costs forever --at some point you have to grow the business.''

Shares of Canadian Imperial rose C$2.55, or 2.8 percent, to C$94.80 at 4:20 p.m. on the Toronto Stock Exchange, the biggest gain since Feb. 26, 2004. The stock has climbed 24 percent this year to a record, the best performer among the country's six biggest banks.

National Bank Financial analyst Robert Wessel, who rates the stock ``outperform'', said profit was C$2 a share excluding one-time items, topping his estimate of C$1.70 a share on that basis. The median estimate of nine analysts polled by Bloomberg News was C$1.68 a share.

Consumer banking profit rose 43 percent to C$501 million from C$350 million a year ago, fueled by credit cards and mortgages. Canadian Imperial set aside C$92 million for bad loans, down 46 percent from the C$170 million set aside a year ago.

Profit at the CIBC World Markets investment bank fell 34 percent to C$218 million. A year ago the bank benefited from a C$241 million gain from the sale of shares in Shoppers Drug Mart Corp., Canada's biggest drug-store chain, and Global Payments Inc., an Atlanta-based company that processes electronic transactions. Capital markets and investment banking fees rose in the quarter.

CIBC expects ``slightly higher'' revenue from its investment bank in this quarter compared to the last, Chief Financial Officer Tom Woods said today in a conference call with analysts.

Annual profit was C$2.64 billion, or C$7.43 a share, compared with a loss of C$32 million, or 46 cents a share, in fiscal 2005 on legal costs related to failed energy trader Enron Corp.

CIBC reached all but one of its objectives for fiscal 2006, missing its target for dividend payouts. CIBC paid 36.8 percent of profit in dividends, below the 40 percent to 50 percent target.

McCaughey cut costs in the fiscal year by C$272 million, exceeding his goal. Non-interest expenses fell 8.2 percent in the quarter, to C$1.89 billion.

``While our progress is encouraging, further improvement is required,'' McCaughey said in the call.

CIBC left its quarterly dividend unchanged at 70 cents a share for the third straight quarter, contrary to analysts' expectations that the bank would raise the dividend.

CIBC wasn't ``aggressive'' with its dividend increases because it's saving cash to take control of FirstCaribbean International bank. CIBC has agreed to buy a 43.7 percent stake from Barclays Plc for $1.08 billion in cash later this month, McCaughey said.

CIBC will discuss dividend increases ``early in 2007'' after its FirstCaribbean acquisition is completed, McCaughey said.

Caldwell's Kinsey said he was ``disappointed'' the bank didn't raise the dividend.

``The stock has done well, so shareholders aren't suffering, but they still could have given us a little Christmas present,'' Kinsey said.

CIBC is the fourth of Canada's six largest banks to report earnings, and each one has topped analysts' profit estimates. Bank of Montreal, the No. 4 bank, said profit rose 4.8 percent to C$696 million on fewer loan losses.

Royal Bank of Canada, the biggest lender, said profit rose to a record C$1.26 billion, and National Bank of Canada, the sixth-largest bank, said profit climbed 6.2 percent to C$220 million on higher investment-banking fees. Toronto-Dominion Bank, the second-biggest lender, and Bank of Nova Scotia, the No. 3 bank, are scheduled to report tomorrow.
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Dow Jones Newswires, Monica Gutschi, 7 December 2006

Canadian Imperial Bank of Commerce is trading at an all-time high Thursday after its fourth-quarter earnings easily beat analyst forecasts.

In Toronto, Canadian Imperial is up C$2.23 to C$94.48 on 1.9 million shares. Earlier it touched a record C$94.71.

Canadian Imperial, the country's fifth-largest lender, surprised the market with fourth-quarter net income of C$819 million or C$2.32 a share, compared with C$728 million, or C$2.06 a share a year earlier. The latest quarter's results included 34 Canadian cents a share in one-time gains and a charge of 2 Canadian cents.

On a cash basis, diluted earnings per share were C$2.34, well above the analyst forecast of C$1.66 a share. Excluding items, cash earnings were C$2.02 a share, still substantially ahead of expectations.

"Wow!," wrote Ian de Verteuil, analyst at BMO Capital Markets. Even with lower revenue, a beneficial tax rate, a reduction in credit provisions and strong trading results, the earnings were of relatively high quality, he said.

"The great news was retail, where loan losses declined and market share stabilized. We predicted both of these developments in recent reports, but they are occurring sooner than we expected," de Verteuil wrote.

Although Canadian Imperial may have disappointed some investors by not raising its dividend nor announcing a stock buyback, de Verteuil said that was not surprising under the circumstances.

The bank is expected to pay US$1.08 billion by year-end for the 43.7% stake of FirstCaribbean International Bank of joint-venture partner Barclays PLC (BCS). Canadian Imperial had earlier indicated it would revisit its dividend and buyback policies after the purchase was complete.

BMO Capital Markets has an investment-banking relationship with Canadian Imperial and makes a market in its securities.

"I think it was a pretty decent quarter for CIBC driven primarily from lower costs," said Tom Kersting, an analyst with Edward Jones. He doesn't own its shares nor does his firm have an investment-banking relationship with the company.

Although there were a number of "moving parts" in both the latest and year-ago earnings reports that made analysis challenging, Kersting said the bank had done a good job in "executing its strategy" of reducing annual expenditures. The bank cut more than 900 positions over the past year.

UBS said the bank had improved its productivity, easily exceeding its target of reducing annual expenditures by C$250 million. As well, UBS noted its market-share trends look "encouraging."

"We see CM entering '07 as a leaner/more efficient platform (with more to go), better able to compete for business & deliver more consistent earnings," UBS wrote.

UBS has an investment-banking relationship with Canadian Imperial, makes a market in its securities, and is advising on the First Caribbean purchase.

Canadian Imperial did report a drop in revenue in the quarter, to C$2.89 billion from $3.42 billion a year ago. However, year-earlier results included C$301 million from repatriated earnings and a C$294 million divestiture gain.

Its Retail Markets division had net income of C$501 million, up from C$350 million a year earlier. Revenue in the division slipped C$17 million to C$2.04 billion.

CIBC World Markets reported net income of C$218 million for the current quarter, down from C$328 million in 2005. Revenue of C$697 million was down $266 million from the fourth quarter of 2005.

Corporate and Other reported net income of C$100 million in the fourth quarter, up from C$50 million a year earlier. Revenue of C$147 million was down C$252 million from a year ago, primarily due to C$301 million in foreign exchange gains a year ago.

"CIBC is going through their rebirth," said Todd Johnson, a portfolio manager at Cardinal Capital Management in Winnipeg, who owns the bank's shares. "I think they've executed fairly well."

However, Andre-Philippe Hardy at Merrill Lynch said much of the earnings pop came from an unsustainably low tax rate and lower loan losses. As well, he noted that "cost-driven earnings growth is not sustainable over time," the bank holds less capital than its peers and it has sacrificed potential revenue growth as it has worked to reduce its risk profile. That means it still deserves its discounted valuation to other Canadian banks, he said.

Merrill Lynch has an investment-banking relationship with Canadian Imperial and makes a market in its securities.
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RBC Capital Markets, 7 December 2006

First Impression

• Q4 Boosted by Improved Credit. Reported cash EPS of $2.34 was ~$2.02 excluding identified tax recoveries ($27¢), a general loan loss release (7¢) and AcG-13 losses (2¢). Adjusted cash EPS still beat $1.65 consensus and our $1.62 by a wide margin. The underlying loan loss accrual of $131MM was $36MM below estimates adding ~8¢ of the variance.

• Variances By division: Corporate was 10¢ high; Retail 8¢ high, and; Wholesale 21¢ above. We would estimate that the full retail and half of wholesale variances might be sustainable, indicated at roughly 10% of our current 2007 estimate. We will have more detail (and any adjustments) after the 3:30 analyst call.

• Retail Up 18% YoY on Lower Loan Loss & Cost Cutting. Net income of $474M (excl. tax recovery) was $26MM above our modeled estimate largely on a lower-than-estimated loan loss at 0.41% of L&A versus 0.50% in Q3/06, and 0.71% in Q4/05. Revenue was down 1% YoY, but expenses dipped 3% for +2% operating leverage. Spread dipped 14 bps YoY and 6 bps QoQ, likely reflecting the product mix shift.

• Wholesale Strong, Added 21¢ Versus Estimates. Earnings of $217MM (adjusted) were $71MM above our estimate (21¢ EPS) on a negligible loan loss and tax expense. Key revenue items were strong, ~$60MM (16%) above our estimate. Trading revenue of $236MM was up 19% YoY ($20MM above our estimate). Securities gains were $25MM versus $40MM in Q3/06 (we were factoring nil). Underwriting and advisory rose 14% YoY to $168MM ($15MM high). Also, the incentive compensation was 64% of related revenue, below the 67% year-to-date average.

• Loan Losses Falling, Coverage Improving. The bank deserves credit for driving loan losses lower. Impaired loans at $630MM were excellent, down 16% QoQ and down 34% YoY (IL’s are rising at peer banks). Reserve coverage jumped to 229%.

• No Dividend Hike. CIBC abstained from a dividend hike this quarter, likely preferring instead to accumulate capital ahead of the First Caribbean deal.
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The Globe and Mail, Allan Robinson, 7 December 2006

Canadian Imperial Bank of Commerce reports its fourth-quarter results today and while the bank has been struggling to regain its competitive edge, its share price has kept pace with the soaring financial sector as dividend-hungry investors bid share prices higher.

Both CIBC and Bank of Montreal, which reported last week, were once touted as the most likely candidates to be taken over in an anticipated orgy of domestic bank mergers, but today they are looking at ways to generate growth.

A third consecutive quarter of declining revenue by CIBC could overshadow strong share profit growth and a possible dividend increase, Mario Mendonca, an analyst with Genuity Capital, said in a recent report. He has a "sell" rating on CIBC.

There are four "buy" and two "sell" recommendations on CIBC with seven analysts sitting on the sideline with "holds," according to Bloomberg.

Analysts forecast CIBC earned $1.66 a share during the fourth quarter of fiscal 2006, compared with $1.45 a share a year earlier, according to Thomson First Call. Its profit for fiscal 2006 is expected to be $6.57 a share, compared with $6 a year earlier.

While CIBC's profit is expected to rise, analysts forecast its revenue during the fourth quarter declined 17 per cent on a year-over-year basis to $2.85-billion and that its revenue for fiscal 2006 has declined 9 per cent to $11.3-billion, according to Thomson. Analysts remain concerned about its loss of market share.

CIBC shares closed yesterday at $92.25, up 39 cents, and yield 3.05 per cent. The shares have surged in recent weeks in response to the bank's ability to keep expenses down and provisions for credit losses in check, Mr. Mendonca said.

Also reporting results today is Canadian Western Bank; tomorrow it's the turn of Bank of Nova Scotia and Toronto-Dominion Bank.

Over all, the domestic financial sector, boosted by the strong results of Royal Bank of Canada, has put on a powerful surge since mid-June, rising 18.5 per cent; not even the mixed fourth-quarter results from the first three banks that have reported recently have shaken investor confidence.

"Financial stocks, led by banks, are poised to benefit from as many as four interest rate cuts by the Bank of Canada over the next year as mounting job losses in the manufacturing sector and economic weakness in Central Canada compels central bank easing," said Jeffrey Rubin, chief strategist for CIBC World Markets Inc.

'While CIBC's profit is expected to rise, analysts forecast its revenue during the fourth quarter declined 17 per cent on a year-over-year basis.'
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