Moody’s Investors Service has affirmed the ratings of CIBC following its fourth quarter 2008 earnings announcement, the rating agency said Thursday.

Moody’s also maintained its negative outlook on the bank’s ratings.

“The affirmation of CIBC’s ratings is based on strong risk-adjusted profitability within the bank’s core Canadian franchise, a good Tier 1 regulatory capital ratio, and favorable asset quality performance relative to similarly-rated peers,” said Peter Routledge, Moody’s vp and senior credit officer, in release.

“Moody’s has maintained the negative outlook due to its continuing concerns with CIBC’s strategic risk management. Moody’s also incorporates an anticipated moderate deterioration in CIBC’s profitability and asset quality as, and if, the Canadian economy weakens in 2009,” Routledge added.

CIBC reported $1.9 billion in gross structured credit losses, a total which includes $629 million in losses outside its reported net income due to accounting changes. Net of a $895 million gain on the reduction of an unfunded commitment to a variable funding note, the loss was $1 billion, bringing total pre-tax structured credit losses for 2008 to an estimated $8.2 billion. This figure is close to 70% of CIBC’s Tier 1 Capital prior to the recent period of turmoil in the capital markets, a fact that underscores Moody’s concern with CIBC’s risk management discipline.

For 2008 overall, CIBC’s risk-adjusted profitability, excluding the structured credit losses, was superior to similarly-rated peers across North America. When adjusted for the structured credit losses, the bank’s core earnings (pre-tax, pre-provision income) accounted for approximately 3.0% of managed risk-adjusted assets (risk adjusted assets plus securitized assets excluding securitized retail mortgages). This performance is above the average of banks with equivalent financial strength ratings and highlights a key credit strength which has been obscured by CIBC’s sizable structured credit losses.

CIBC’s Tier 1 ratio rose to 10.5% in 4Q08 and is the highest amongst all the Canadian banks. “While CIBC’s high capital ratios provide a cushion against unforeseen future losses, this action must be evaluated within the broader context of improvements to CIBC’s strategic risk management practices,” Moody’s said.

CIBC’s asset quality deterioration remains contained relative to its similarly-rated North American peers. Nonperforming assets (NPAs) account for 9% of tangible equity and reserves which is a strong performance, particularly given current economic conditions. New formations of NPAs jumped significantly in 4Q08, but remain well below levels witnessed during the last economic downturn.

Regarding the future direction of CIBC’s ratings, Moody’s noted that more time is required to evaluate fully the remedies the bank has taken to address is risk management weaknesses.

IE