The Canadian Imperial Bank of Commerce (CIBC) kicked off banks’ earnings season with a dividend hike and first-quarter (Q1) net income that beat market expectations on the back of strong results at home and south of the border.
Canada’s fifth-largest bank said Thursday it continues to see benefits from the purchase of Chicago-based The PrivateBank, which CIBC acquired in June 2017 and rebranded in September as CIBC Bank USA. As part of its strategy to ramp up its U.S. presence, it also purchased Chicago-based wealth management firm Geneva Advisors for roughly US$200 million last year.
The bank’s U.S. commercial banking and wealth management division reported net income of $134 million in the latest quarter, up $105 million from the same period in 2017.
“With a second full quarter’s contribution from CIBC Bank USA, we continue to perform well and deliver against our commitment to build client relationships north and south of the border,” CIBC chief executive Victor Dodig told analysts on a conference call.
Dodig has estimated that CIBC’s U.S. business will account for 17% of its earnings by 2020, up from 9% in fiscal 2017. Over the medium term, it hopes to increase that proportion to 25%.
CIBC was the first of Canada’s big banks to report results for the quarter ended Jan. 31. It raised its quarterly payment to common shareholders by 3¢ to $1.33 per share, even as it reported a decline in profit attributable to shareholders, which amounted to nearly $1.31 billion, down from $1.39 billion a year ago.
However on an adjusted basis, the bank said it earned a record $1.41 billion or $3.18 per diluted share for the quarter, up from $1.15 billion or $2.89 per share a year earlier. Analysts had expected an adjusted profit of $2.83 per share, according to Thomson Reuters.
Industry watchers are looking for early signs in the banks’ Q1 earnings of impact of recent changes to the banking landscape such as stricter rules surrounding uninsured mortgages as of Jan. 1.
Canada’s biggest banks have cautioned that the tougher qualifying requirements could present a headwind to loan originations. The new rules introduced by the federal financial services regulator require would-be homebuyers who have a down payment larger than 20% to prove they can continue to service their mortgage if interest rates rise.
Demand for mortgages in December saw an uptick, with national sales up 4.5% according to the Canadian Real Estate Association, as buyers scrambled to snap up homes before Jan. 1.
However, it is too early to gauge the extent of the impact of the rule changes, as well as the January interest rate hike, said Christina Kramer, CIBC’s group head of personal and small business banking for Canada.
“We saw some pull forward in November and December, so January itself is not a good indication alone,” she told analysts. “So early days, we’re not seeing any big change to customer behaviour.”
The bank’s Canadian personal and small banking arm reported net income of $656 million for the period, down $149 million or 19% compared with a year ago. However, on an adjusted basis, net income was $658 million, up $97 million or 17% from a year ago.
Net income for the domestic commercial banking and wealth management division was $314 million, up 14% compared with a year earlier. Its capital markets net income was $322 million for the quarter, down $25 million or 7% from a year earlier.
The bank’s common equity tier 1 ratio, a key measure of the bank’s financial health, was 10.8%, up from 10.6% in the previous quarter but down from 11.9 a year ago.
The bank’s results included charges totalling 23¢ per share, including an $88-million net tax adjustment due to a cut to the U.S. corporate tax rate from 35% to 21% that took effect this year.
Several of Canada’s biggest banks have indicated they expect to record a writedown to reduce the value of deferred tax assets already held on company balance sheets as a result of tax changes under U.S. president Donald Trump. Dodig has said that while there would be an initial writedown, he would expect an uptick to CIBC’s earnings in the long run as a result, and as it ramps up the size of its U.S. business.