29 May 2009

CIBC Q2 2009 Earnings

• BMO Capital Markets cuts target price from $60 to $54
• Credit Suisse cuts target price from $49 to $48
• Desjardins Securities cuts target price from $66 to $62
• Dundee Securities cuts target price from $55 to $52
• Macquarie Securities cuts target price from $57 to $55
• National Bank Financial raises target price from $54 to $55
• RBC Capital Markets has a target price of $95 (yup, Andre-Philippe Hardy has a 12-month target price of $95 for CIBC)
• Scotia Capital has a target price of $68
• TD Securities cuts target price from $68 to $60
Scotia Capital, 29 May 2009

Q2/09 Earnings - in Line - Underlying Weak

• CM reported a decline in cash operating earnings of 11% to $1.44 per share, in line. Earnings were driven by stronger wholesale earnings and high security gains. Operating ROE was 21.0%.


• Reported cash earnings were a loss of $0.21 per share, after net charges on structured credit, MTM on derivatives and other items of $1.65 per share.

• Earnings at CIBC Retail Markets were disappointing, declining 21% YOY due to a decline in retail net-interest margin and a rise in LLPs. CIBC World Markets earnings were $203 million, up more than double from a year earlier.

• AFS/FVO gains remained high contributing $0.32 per share to earnings.

• Earnings estimates and share price target unchanged.


• CM has not covered its common dividend in five out of the past six quarters. Maintain 3-Sector Underperform based on negative earnings momentum at CIBC Retail Markets.
Bloomberg, Doug Alexander and Sean B. Pasternak, 25 May 2009

CIBC World Markets ousted TD Securities as the top equities trader for the first time in six years as Canadian banks use a rebound in trading to help replace profits lost to bad loans.

Canadian Imperial Bank of Commerce’s investment bank was the top trader by volume on the Toronto Stock Exchange for the past three months, taking almost a fifth of the market in April, according to data from TMX Group Inc., the exchange owner. TD Securities had been the top trader every month since 2003.

Canadian banks, which begin reporting second-quarter results tomorrow, will probably post a surge in trading revenue as global markets recover from the worst economic crisis since the Great Depression. Canada’s benchmark Standard & Poor’s/TSX Composite Index rose 7.2 percent in the quarter ended April 30, outpacing the 5.7 percent increase in the S&P 500 Index.

Trading fees at the six biggest banks will more than double to C$2.62 billion ($2.3 billion), said Sumit Malhotra, an analyst at Macquarie Capital Markets in Toronto.

CIBC, Canada’s fifth-biggest bank, hired three exchange executives, including former executive vice-president Rik Parkhill, as it ramped up electronic trading to win business from Toronto-Dominion Bank and other rivals.

“The placement of Rik gives them a definite inside edge in terms of TSX and how it trades,” said John Aiken, a bank analyst at Dundee Securities Inc. in Toronto. “This is a strategic move by CIBC and it effectively has taken place almost overnight.”

The surge won’t be enough to increase overall profits, which will plunge on higher provisions for bad loans and falling demand for credit in the country’s first recession since 1992, analysts said.

Canadian banks will report that profit before one-time items dropped 17 percent on average, the sixth straight quarterly decline, said Malhotra. Bank of Montreal, the No. 4 bank, is the first lender to report, at about 7:30 a.m. tomorrow.

Canadian Imperial is among the banks benefiting from the trading rebound, surpassing TD Securities in February, according to TMX data. Simone Philogene, a spokeswoman for Toronto- Dominion, declined to comment.

CIBC hired former exchange Chief Executive Officer Richard Nesbitt to head its investment bank in January 2008. Parkhill followed in August after the owner of the Toronto Stock Exchange bought the Montreal Exchange derivatives market.

“If you look at who’s running the show, it makes obvious sense,” Genuity Capital Markets analyst Gabriel Dechaine said. “Having the exchange background, their view is very different from the traditional brokerage executives.”

CIBC is focusing on electronic trading for money managers and traders to reduce costs and exploit split-second price discrepancies. Those customers tap the Toronto exchange, and alternative trading systems such as Pure Trading and Chi-X Canada, as well as marketplaces in the U.S.

Toronto-based CIBC spent a decade building systems to take advantage of automated trading, which is gaining on the traditional block trading dominated by Canadian banks. Electronic trading accounts for 15 percent of volume on the Toronto exchange, up from almost nothing a year ago, according to TMX. Block trades are orders of 10,000 shares or more worth at least C$100,000.

“We adapted rapidly to the market structure changes that are under way in Canada and developed products and services that allowed our clients to trade more efficiently,” said Parkhill, CIBC’s head of cash equities. “The market is changing, and either you embrace change or you become a victim of it.”

Even with the gains, CIBC has the smallest trading business among the country’s six biggest lenders. The bank’s second- quarter trading revenue was about C$85 million, a 27 percent increase from the year earlier, according to Darko Mihelic, a CIBC bank analyst. Royal Bank of Canada, the biggest bank, will probably report revenue 10 times higher, he said. The revenue figures include fixed-income, currency and stock trading.

“The all-important question is how profitable is this trading for CIBC, and that’s yet to be seen,” Aiken said.

CIBC rose C$2.08, or 3.9 percent, to C$55.78 at 4:10 p.m. in Toronto Stock Exchange composite trading, leading a surge among Canada’s biggest banks. Bank of Nova Scotia rose 2.3 percent, followed by a 2.1 percent increase for Toronto- Dominion, a 1.7 percent rise for Bank of Montreal and a 0.95 percent gain for Royal Bank.

Trading gains won’t be enough to offset rising loan defaults among the country’s biggest banks with unemployment at a seven-year high of 8 percent.

Canadian banks may set aside C$2.26 billion for bad loans, more than double the amount from a year ago, according to BMO Capital Markets analyst Ian de Verteuil.

“We’re still nervous about that particular area, as unemployment is rising and consumers have pretty much maxed out their credit cards,” said John Kinsey, who helps manage about C$1 billion at Caldwell Securities Ltd. including bank shares. “It’s only going to get worse.”

Bank of Montreal may say that profit before one-time items fell 28 percent to 86 cents a share, according to de Verteuil.

Toronto-Dominion, Bank of Nova Scotia, CIBC and National Bank of Canada report results May 28. Toronto-Dominion may say profit fell 11 percent to C$1.17 a share on lower asset- management fees, de Verteuil said.

Bank of Nova Scotia, Canada’s No. 3 bank, may say profit fell 10 percent to 87 cents a share on higher loan losses and a decline in asset-management fees, he said. Montreal-based National Bank may report per-share profit fell 14 percent to C$1.21 on higher trading and credit losses. Canadian Imperial’s profit probably fell 12 percent to C$1.43 a share on lower investment-banking earnings.

Royal Bank’s profit may be unchanged at C$1.05 a share, excluding $850 million in writedowns announced last month.