CIBC’s chief executive offered an impassioned defence of Canada’s banking sector the day after Liberal Leader Justin Trudeau made a campaign pledge to raise the tax rate for the industry.
“Banks have always been in the crosshairs, but what you want is a healthy banking system,” Victor Dodig said during a conference call Thursday to discuss the bank’s quarterly earnings.
“A healthy banking system helps the economy grow.”
Dodig said he would not comment on specific election promises but wanted to remind investors of the work banks did during the early days of the outbreak, when they distributed pandemic stimulus funds and deferred on loans for clients. He also noted that most Canadians benefit either directly or indirectly from the dividends and economic growth of the banks.
It’s important that the government policies not discourage foreign investment, said Dodig.
“My great hope is that you don’t have intervention in any particular industry sector, because that doesn’t actually attract foreign capital. We need capital and we need people to come to Canada to make the country stronger and to make the country better.”
On Wednesday, Trudeau proposed raising the corporate income tax rate by three percentage points on banks and insurance companies with earnings over $1 billion, which he said had come into “windfall” profits because of economic stimulus measures from the government.
The proposal also includes establishing an unspecified “recovery dividend” for the two industries that would last four years, which together with the tax increase would bring in at least $2.5 billion a year.
“This week, Canada’s biggest banks are posting their latest massive profits of billions of dollars […] so as we rebuild, we’re going to ask big financial institutions to pay a little back,” Trudeau said.
CIBC reported earnings of $1.73 billion or $3.76 per diluted share for the quarter ended July 31, up from $1.17 billion or $2.55 per diluted share a year earlier.
The 48% increase came as CIBC reported a $99-million reversal of credit losses for its latest quarter compared with a provision for credit losses of $525 million in the same quarter last year.
On an adjusted basis, CIBC says it earned $3.93 per diluted share, up from an adjusted profit of $2.71 per diluted share a year earlier. Analysts on average had expected the bank to earn $3.41 per share, according to financial market data firm Refinitiv.
On Thursday, CIBC also announced a commitment to reach net zero emissions associated with its operational and financing activities by 2050, and increased its sustainable finance target to $300 billion by 2030.
Dodig said the bank had already ramped up funding on renewable energy projects. It ranked third for North American renewable energy financing for the first half of this year, up from 26th place in 2016.
CIBC will also set up interim targets to reduce the emissions that it helps finance, and will begin reporting on progress starting next fiscal year, said Dodig.
“The transition to a low-carbon global economy will take meaningful commitment and it’s going to take action from everyone,” he said.
CIBC said its Canadian personal and business banking division earned $642 million for the third quarter, up from $457 million a year ago, helped by lower provisions for credit losses and higher revenue, partially offset by higher expenses.
Canadian commercial banking and wealth management reported a profit of $470 million for the quarter compared with $320 million in the same quarter last year — an increase of 47% — also helped by a reversal of loan loss provisions in the current quarter, partially offset by higher expenses.
Wealth management revenue was up $136 million from the same quarter last year, primarily due to higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and net sales, and higher commission revenue from increased client activity, the report to shareholders said.
CIBC’s U.S. commercial banking and wealth management operations earned $266 million, up from a profit of $60 million a year ago.
CIBC’s capital markets business reported net income of $491 million for the third quarter, up from $443 million in the same quarter last year.
Editor’s note: The Canadian Press erroneously reported that Justin Trudeau had proposed to raise the corporate tax rate by 3% on banks and insurance companies with income of over $1 billion. In fact, he had proposed raising it by three percentage points.