CIBC Sees No Significant Revenue Hit from Trust Ruling

Financial Post, Peter Koven, 19 December 2006

Canadian Imperial Bank of Commerce does not expect a "significant" revenue hit due to the federal government's crackdown on income trusts, the company revealed yesterday.

The announcement came in the bank's accountability report for 2006, which was filed with regulators as part of its Annual Information Form.

The decision to tax income trust distributions, which came on Oct. 31, raised concerns that underwriting activity at the banks would dry up, particularly since most Canadian IPOs in recent years have been trusts.

CIBC World Markets, the company's investment banking arm, was particularly active in the trust market. It participated in 31 income trust transactions worth approximately $4.3-billion in the first 11 months of 2006, according to data collected by FP Datagroup. That's more than any other underwriter in Canada.

But Mario Mendonca, analyst at Genuity Capital Markets, said none of the banks appear to be worried about the chill on trusts.

"In the context of their total revenue, they don't see [trusts] as a big deal. And they feel content there will be enough M&A-type business going the other way as these companies convert back to corporations or seek some kind of exit strategy or merger," he said.

Elsewhere in the report, CIBC said the outlook for its businesses "remains positive" going into 2007, despite forecasts of slower economic growth.

On the retail banking side, the company expects to keep profiting from low interest rates and low unemployment, which should support its lending and deposit growth. And CIBC World Markets should benefit from steady M&A activity, "but with a less active mining market and the potential for a moderation in energy prices," the report noted.

On the down side, CIBC expects its merchant banking portfolio, which includes corporate debt transactions, to decrease because of fewer revenue opportunities.

The company did not offer an earnings forecast for fiscal 2007. In 2006, it reported a record profit of $2.6-billion. That compared to a loss of $32-million in 2005 when it agreed to pay out US$2.4- billion to settle Enron litigation.;