Dominion Bond Rating Service today raised the long-term ratings trends on CIBC to “Stable” from “Negative”.

The rating agency says that the trend change reflects ongoing actions taken by CIBC over the past two years to address earnings volatility, credit quality, expense management, and the viability of the U.S. strategy. The long-term trends have been Negative since October 9, 2002. Additionally, DBRS has confirmed the long- and short-term ratings on the bank.

The trend change is supported by CIBC’s execution of its strategy, which should contribute to earnings stability in the future through the growth of its retail businesses and reduction in the volatility of its capital markets businesses, DBRS says. It notes that over the past three years, the bank has increased the percentage of economic capital deployed in retail businesses to approximately 70% from 50%.

DBRS says that the corporate and investment banking segment has been taking actions that DBRS believes should lower earnings volatility and improve the overall credit quality in the long term, including reducing the single name concentrations within, and absolute size of, its large corporate credit portfolio, decreasing the amount of the merchant banking portfolio, and lowered value at risk on its trading activities.

CIBC has made progress in improving its expense ratio, overall and in each operating segment, which has led to a narrowing in the gap between CIBC and the average of its large Canadian bank peers, it says. DBRS anticipates current initiatives will further improve the expense ratio, although at a much slower rate than in the past two years.

The firm also suggests that the bank’s U.S. strategy has become more viable as it closed or sold off businesses that were losing money or not meeting profitability metrics. DBRS believes the current approach of leveraging existing Canadian strengths to increase profitability in the U.S. corporate and investment bank is a feasible strategy.

On the downside, it notes that litigation risk remains an uncertainty. It is too early to predict the outcome of class action suits, but DBRS continues to believe settlement costs will not be of a magnitude that would impact ratings. The bank has taken measures to improve business practices, it notes, albeit partially related to regulatory settlements and investigations, which DBRS anticipates should mitigate some of the negative effects on reputational risk going forward.