BMO Nesbitt Burns is upgrading CIBC, following the bank’s analyst meeting yesterday.

In a new report, BMO Nesbitt Burns raises its earnings forecast and target price for CIBC, and boosts its recommendation to ‘outperform.’ The report notes that at the meeting the bank, “simply re-affirmed its strategy of sticking to the basics. This involves rebuilding the balance sheet, a focus on cost reductions and emphasizing existing business lines.”

It notes that, “From our perspective, this is the right focus at the right time. Given the bank’s weakened position after the Enron settlement, we believe that CIBC needs less big picture initiatives and more micro execution.”

“While there was little additional information, we are developing increased confidence that the cost focus that has been articulated by management over the past 12 months will translate into bottom line benefits,” the report adds. “Specifically, management continues to stand by its expectation that it can remove $250 million of annual operating costs.” And, further cost cuts could come in 2006.

“We note that CIBC, because of its low share count and financial leverage following the Enron settlement, has the ability to turn earnings relatively quickly,” it says. It expects new management to get on with cost cuts, and for the bank to rebuild its capital quickly.

That said, it notes that there are still some risks at CIBC. “First, the bank is somewhat more highly leveraged than its peers. . . Second, as with all banks, CIBC has exposure to deterioration in the credit environment. . . Third, as we have seen with the Enron situation, there is always possibility that there are contingent legal risks.”

Nevertheless, it is upgrading the bank, and, at the same time, downgrading Bank of Montreal to ‘market perform’ from ‘outperform.’ “With our upgrade of CIBC this morning and our positive view on (TD Bank and Royal Bank), we clearly believe that there is better opportunity in other bank stocks at this time,” it notes.

In delivering the downgrade, the report also cites the fact that BMO’s third quarter earnings were a bit weaker than its peers, and the sector’s recent strength has come from domestic retail banking (where BMO is smaller than its rivals).