15 March 2006

DBRS Confirms Ratings of CIBC

Ratings agency notes improvement in business practices, corporate governance

Investment Executive, 15 March 2006

Dominion Bond Rating Service today confirmed the ratings of CIBC, with trends remaining stable. The ratings agency suggested that capital levels and reputation risk management are the key to higher ratings.

The bank’s ratings are supported by CIBC’s lower-risk retail business mix and progress in improving its expense ratio, which should contribute to earnings stability and credit quality, therefore better positioning CIBC for future downturns, the rating agency explained.

On the downside, the ratings are limited by CIBC’s capital levels (relative to peers). DBRS also has concerns regarding management’s ability to manage reputation-related risk, although it notes the bank has been making progress.

The rating agency said that CIBC’s intention to acquire Barclays Bank plc’s 43.7% ownership stake in FirstCaribbean International Bank, represents a meaningful negative impact of reducing tangible common equity to risk-weighted assets and Tier 1 capital ratios. It says that CIBC’s objective is to maintain a Tier 1 capital ratio at or above 8.5% upon close of the transaction (late 2006). DBRS expects this will be achievable but the capital ratios will be lower relative to its peer group, therefore limiting CIBC’s ability for future expansion or to absorb unforeseen events that impact capital. DBRS expects it will take some time for the gap between CIBC and its direct competitors to narrow.

During the year, CIBC has been making progress in addressing DBRS’s concerns regarding the bank’s ability to manage reputation-related issues. DBRS says it anticipates actions taken should help to mitigate some of the reputation-related issues that negatively impacted CIBC in the past, but reputation-related risk management remains an ongoing challenge. “CIBC has improved business practices, strengthened corporate governance, created an independent internal oversight committee to monitor compliance, and created a new CEO incentive compensation model that is more consistent with a longer-term view on CIBC’s performance,” it said.

“Raising capital to levels closer to direct competitors and ongoing management of reputation-related issues will be the catalyst for positive rating actions by DBRS, assuming that earnings and credit quality strengths can also be maintained. On these metrics, CIBC continued to perform well in Q1 2006,” DBRS said.