As Canada goes, so goes Canadian Imperial Bank of Commerce CM-T, which gets more of its revenue domestically than any other of the country’s five biggest banks.
So when the bank reported a big, expectations-beating profit gain Thursday, coupled with a big stock buyback, analysts wondered: If CIBC is doing fine, does that mean the Canadian consumer is, too?
Just about, CIBC chief executive officer Victor Dodig says.
Analyst Ebrahim Poonawala of Bank of America Merrill Lynch asked Mr. Dodig in the bank’s earnings conference call “have we moved past the concerns around higher rates impacting the Canadian consumer, housing market and economic activity … are we on the other side of that?”
“I would say that we’re in the transition to getting to a better place,” Mr. Dodig replied, saying rate cuts have only just begun. “So I think that sentiment will continue to improve both on the consumer side as well as on the business side, as we continue to see more and more relief, which we are expecting, both in Canada and the United States.”
Mr. Dodig said the bank’s commercial clients “are feeling more buoyant” but its consumer customers “are feeling a little more tentative when it comes to borrowing.” But if there are two or three more rate cuts and five-year fixed mortgage rates get below 4 per cent, “I think you’ll see that sentiment become more solidified, and we would see that as encouraging for the business going forward.”
Mr. Dodig’s comments were a bit more optimistic than other CEOs’. In his quarterly call, Royal Bank of Canada’s Dave McKay exhibited sufficient caution about the macroeconomic environment that analysts asked if the thinking affected its modelling for potential loan losses. This, even after a blowout quarter that saw the bank’s shares hit an all-time high.
CIBC’s stock hit a 52-week high, if not an all-time high, and its 5.5-per-cent gain after earnings were released Thursday was more than double RBC’s.
The sharp jump in CIBC’s third-quarter profits came from double-digit revenue growth and scaling back the money it’s setting aside for problem loans.
The bank also said it plans to buy back 20 million shares, or 2.1 per cent of the company, over the course of a year. At Thursday’s closing price of $77.55, that’s more than $1.5-billion worth of stock. CIBC’s previous buyback program, which ended in December, 2022, saw the bank buy just $134-million worth of shares.
The bank said it recorded profit of just under $1.8-billion in the quarter ended July 31, or $1.82 per share, up 25 per cent from the prior year’s quarter. Adjusted earnings, which remove certain items, were $1.93 per share, a strong beat of analysts’ consensus of $1.74, per LSEG data.
Total revenue of just over $6.6-billion was 12.9 per cent above 2023′s third quarter.
“We are continuing to stick to our game plan, and it’s paying off,” Mr. Dodig said Thursday in the conference call.
CIBC said provisions for credit losses, or money the bank sets aside to cover bad loans, were $483-million, down $253-million from the same quarter last year. The mean analyst forecast was $569-million, according to LSEG data.
When a bank sets aside less money for future loan losses – an expense on the income statement – its earnings improve. Had CIBC provisioned the exact same amount in the third quarter as in the prior year, reported profits would still have increased by more than 8 per cent.
CIBC said it made an unfavourable change in its economic outlook in 2023′s third quarter which elevated that period’s provisions. That made the year-over-year comparison easier.
In 2024′s third quarter, CIBC also made lower provisions in its U.S. commercial banking and wealth management divisions. That was partly offset by higher provisions in its Canadian personal and business banking, capital markets and direct financial services divisions.
A year ago, CIBC took a hit to profits as it booked impairments in its office space portfolio in commercial real estate, with the United States a particular problem. That prompted CIBC to cut back on its holdings in the sector.
The bank’s earnings were “very positive,” Scotia Capital Inc. analyst Meny Grauman said in a Thursday note “given the stress that CIBC saw in its U.S. office portfolio last year and into this year … the bank’s ability to put its U.S. real estate issues firmly behind it is a big positive.”
The bank said its Canadian personal and business banking division – the bank’s single biggest, at about 40 per cent of total revenue – reported net income of $628-million for the third quarter, up $129-million or 26 per cent from the third quarter a year ago.
Revenue for the division of just under $2.6-billion was up 7.6 per cent from the prior year’s quarter. Provisions of $338-million were down more than 20 per cent from 2023′s third quarter.
In the fiscal year ended Oct. 31, 2023, CIBC got 72 per cent of its revenue and 52 per cent of after-tax profits from Canada, according to S&P Global Market Intelligence. Royal Bank, Toronto Dominion Bank, Bank of Montreal and Bank of Nova Scotia get roughly 55 per cent to 65 per cent of their revenue from Canada.
CIBC’s board declared a quarterly dividend of 90 cents, unchanged from the second-quarter announcement and up from 87 cents in 2023′s third-quarter announcement.
Mr. Grauman said the buyback announcement should support growth in earnings per share, “but more than that is likely to calm investor fears about the riskiness of inorganic capital deployment” – i.e., CIBC spending money on acquisitions.
“As we think about capital deployment and capital allocation, we as a team spend a great deal of time focusing first and foremost on organic growth in our business,” Mr. Dodig said in response to an analyst question. He then described CIBC’s acquisition plans as “opportunistic, tuck in” deals. “We are leading an organic growth strategy.”
CIBC was the last of Canada’s Big Six banks to report its third-quarter results.
Toronto-Dominion Bank reported a loss owing to provisions to pay anticipated regulatory fines over anti-money laundering failures. It also missed analysts’ expectations for its adjusted earnings.
Bank of Montreal reported higher profits but missed analysts’ expectations for its adjusted earnings, while Bank of Nova Scotia reported lower profits but beat analysts’ expectations on adjusted earnings.
National Bank of Canada, Royal Bank of Canada and CIBC all reported increased profits and also beat analysts’ expectations for adjusted earnings.