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CIBC profit climbs 6% on retail, business gains

Tags: CIBC

Canadian Imperial Bank of Commerce (CM-T) increased its profit 6 percent in the first quarter, driven by higher income in its retail and business banking operations.

Canada's fifth-largest bank by assets made $811 million, or $1.90 per share, in the quarter. That compared to net income of $767 million, or $1.80 a share, during the same period last year. Revenue rose 2 percent to $3.08 billion.

Excluding one-time items such as tax gains, the bank made $2 a share, beating analysts' forecasts for the quarter. On average, analysts expected CIBC to report adjusted earnings of about $1.86 a share. CIBC kept its quarterly dividend the same at 90 cents.

CIBC's core retail and business banking segment, which is made up of its lending and deposit business in Canada, reported a $556 million profit, up 12 percent from $496 million last year. The gains were fuelled by CIBC's lending operations as Canadians took advantage of historic-low interest rates to book new mortgages and loans last quarter.

However, CIBC said the retail banking business faces a potential slowdown in the year ahead, due to an expected decline in demand for loans as most consumers continue to pay down debt. "Retail and Business Banking is expected to face slightly slower growth in demand for mortgages, while consumer credit demand could continue to see limited growth," the bank said.

Analyst John Aiken at Barclays Capital said the bank's earnings were "well ahead of expectations" and noted that CIBC performed well on containing costs during the quarter. Keeping costs from rising has become a key area of focus for Canadian banks as revenue growth starts to slow.

Aiken noted that CIBC's domestic banking margins increased slightly, by about 4 basis points in the quarter, which is unusual for the sector. Most banks have been seeing their margins compress as competition for loans and low interest rates put a squeeze on their business. Though CIBC's loan growth lagged some of its peers, keeping costs down helped prevent those margins from shrinking.

The bank's wealth management business earned $79 million, up 8 percent from $73 million a year ago. A drop in commissions due to lower trading activity was offset by higher income from its purchase last year of a 41-percent stake in U.S. mutual fund manager American Century Investments for $848 million, the bank said.

However, earnings at CIBC's wholesale banking business, which includes investment banking, fell slightly to $133 million, a drop of $2 million. The slight decline was due to sluggish market activity, including lower revenue from equity and commodities trading, as well as foreign exchange and debt issuance activity compared to last year.

Provisions for credit losses, or the amount banks set aside to cover bad loans, rose 26 percent in the quarter, jumping to $308 million from $245 million a year ago. The increase was due to higher losses in CIBC's domestic personal loan book, U.S. real estate lending, and its Caribbean banking business, the bank said. However, those loan losses improved 9 percent from $338 million in the first quarter.

The bank reported a $7-million loss from its structured credit run-off business, which was down from a loss of $33 million a year ago. Net income at the bank's "corporate and other" division, which includes some of its Caribbean banking functions, as well as various other administrative operations, fell to $45 million from $58 million last year.

CIBC said it continues to explore a potential sale of its mortgage broker business FirstLine. The bank announced this year it plans to get out of selling mortgages through brokers in hopes of increasing its margins by writing the loans through its branch network. If CIBC can't find a buyer for the business, it will likely shut FirstLine down.

The bank is also selling its private wealth management business based in Hong Kong and Singapore, which it called a "niche advisory and brokerage business." The offices catered to high net worth clients in the Asia-Pacific region and had less than $2 billion of assets under management at the end of the April, CIBC said.

In its forecast of the Canadian economy that accompanied the earnings, CIBC said the country faces a slowdown, particularly amid the ongoing economic troubles in Europe, and the strong Canadian dollar, which weighs on exports.

"Canada's economy faces a deceleration in global demand due to a likely recession in Europe, a slower pace of growth in emerging markets, and the challenges of competing in the U.S. market at a near-par exchange rate," the bank said. "Although consumer credit growth has slowed, moderate growth in consumer spending will be sustained by continued low interest rates, with the Bank of Canada limiting interest rate increases through 2012 as growth comes in below its latest forecast." CTV Two CTV News CTV News Channel BNN - Business News Network CP24