CANADIAN IMPERIAL BANK OF COMMERCE $69 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 335.0 million; Market cap: $23.1 billion; SI Rating: Above average) is Canada’s fifth-largest bank, with assets of $342.2 billion.
CIBC has the most exposure to the U.S. subprime mortgage market among the top five Canadian banks. It has already written down its holdings by about $1 billion. CIBC now faces a further $2 billion charge due to growing uncertainty over hedges it purchased from troubled U.S. bond insurer ACA Financial Guaranty Corp. to protect it from subprime losses. In 2005, CIBC paid $2.5 billion (after-tax) to settle Enron-related claims.
If you exclude writedowns and a gain on the restructuring of the Visa credit card system, CIBC’s earnings in the year ended October 31, 2007 rose 27.3%, to $9.24 a share (total $3.1 billion) from $7.26 a share ($2.5 billion) in 2006. Revenue grew 6.6%, to $12.1 billion from $11.35 billion, due to strong growth at its retail banking division plus an acquisition.
Bad loans grew to 0.15% of total loans in 2007 from 0.05% in 2006. But that’s still below 0.17% two years earlier. CIBC is also doing a good job controlling operating costs. Its efficiency ratio (noninterest expenses divided by revenue — the lower, the better) fell to 63.1% in 2007 from 66.0% in 2006.
Asset sales will probably cut CIBC’s earnings, excluding writedowns, in 2008 to $8.80 a share, and the stock trades at 8.2 times that figure. The $3.48 dividend yields 5.0%.
CIBC is a buy.
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