By James Langton
(May 16 – 11:40 ET) – Merrill Lynch is beating the drum for Canadian Imperial Bank of Commerce, praising it for its investment banker style focus on efficient capital allocation.
Merrill cites several positive developments at the bank that have been revealed through investor meetings. For one, CIBC’s top executives all become significant shareholders. And about 50% of their annual pay will come through stock and stock-related compensation. Merrill notes that this compensation is tied to the bank achieving its stated $500 million cost-cutting objectives.
The bank is also reducing earnings volatility by cutting back on risky trading. It is benefitting from technologically sophisticated capital allocation systems. It is the best investment bank on the Street by focusing on client-oriented, high margin, lower risk initiatives, says Merrill.
Merrill notes that the bank has become ruthless about competing. There are no “free rides” among its business lines. For example, the bank has been identifying core corporate lending relationships and cutting loose those that don’t make the cut.
CIBC has the strongest balance sheet on the Street, with the highest Tier 1 capital ratio, the biggest pool of unrealized securities gains, and $1 billion in loan loss provisions.
Lastly, it is also the bank pursuing the most innovative top-line growth strategies, including numerous co-branding arrangements. Merrill likes CIBC’s new online venture for small business. The bank has partnered with Business Depot and eight other firms to offer discounts to small businesses through a website at www.bizsmart.com, or in-store kiosks.