Friday, February 27, 2009

CIBC Q1 2009 Earnings

RBC Capital Markets, 27 February 2009

• CIBC's Q1/09 results were neutral to our view on the stock. Capital ratios were lower than expected, credit performance was better than we expected and earnings were close to our estimates on a GAAP basis, and higher on a core basis.

• We increased our 2009 core cash EPS estimate to $5.60 from $5.32, reflecting the Q1/09 earnings results relative to our estimates.

• We rate CIBC's stock as Sector Perform, which is the highest rating we have for a Canadian bank. For the next three to six months, CIBC's stock should benefit from low exposure to U.S. credit and lower exposure to corporate credit risk. Offsetting these positives is continued lackluster relative retail revenue growth and weaker than peer domestic retail credit trends, which reflects the bank's leading position in Canadian credit cards. Earnings risk related to structured finance exposures should be lower than it was in 2008, although we expect writedowns to continue.
Financial Post, David Pett, 27 February 2009

CIBC may have swung to a first quarter profit, but analysts weighing in on the results aren't ready to start dancing in the streets. Instead many of them remain extremely concerned about the bank's credit woes and warn investors to proceed with caution.

"For fiscal 2009 and fiscal 2010, we see a weak credit outlook, driven by the slumping economy as the key driver of bank earnings prospects, said Michael Goldberg, analyst at Desjardins Securities.

"While this is expected to cause higher on-balance sheet loan losses, CIBC faces the added risk of markdowns from its off-balance sheet non-mortgage structured credit exposures."

Mr. Goldberg reduced his fiscal 2009 EPS forecast from $4.85 per share to $3.85 per share due to higher expected loss provisions and his fiscal 2010 earnings forecast from $6.60 to $6.20. The analyst added that his earnings estimates could be worse if markdowns in the structured credit run-off books continue. He maintained his "hold" rating and left his $59 price target unchanged.

Blackmont Capital analyst Brad Smith called CIBC's first quarter a "disappointing start to the year" and reiterated his "hold" recommendation and $46 price target.

"The so-called 'run off' structured credit business net loss increased 49% sequentially to $483-million after tax, and is unlikely, given current market conditions, to get much better any time soon.

Ian De Verteuil, analyst at BMO Capital, downgraded his rating on CIBC from "outperform" to "market perform" and left his price target unchanged at $49. Although he acknowledged his concern regarding CIBC's credit, Mr. De Verteuil also expressed worry about the bank's Tier One Capital in relation to its peers.

"While we believe that the bank is making progress on structured credit, this remains an issue. Given the premium price/book value and price/tangible book value and the bank's below-average capital position, we believe that the upside is now more modest."