CANADIAN IMPERIAL BANK OF COMMERCE $95 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 337.5 million; Market cap: $32.1 billion; SI Rating: Above average) has assets of $326.6 billion, which makes it the smallest of Canada’s big five banks. It operates roughly 1,100 branches in Canada.
Thanks to strong gains from its credit card and mortgage businesses, CIBC’s profits before unusual items in its second fiscal quarter ended April 30, 2007 rose 18.4%, to $1.93 a share (total $657 million) from $1.63 a share ($585 million) a year earlier. CIBC’s purchase of a controlling interest in FirstCaribbean International Bank added $0.05 a share to the latest quarterly earnings. Revenue rose 8.9%, to $3.05 billion from $2.8 billion.
In the past few years, CIBC has cut back its corporate lending, so it can focus on its less-risky retail business. Corporate lending now accounts for about 25% of its business, down from 35% three years ago.
CIBC aims to improve its retail market share with several new initiatives, such as high-interest savings accounts and a $90 million upgrade of its bank machine network. The bank is also doing a good job of cutting costs. Its efficiency ratio in the most recent quarter improved to 64.8% from 66.1% a year earlier.
The bank raised its loan loss provisions by 20% in the second quarter, due to higher credit card exposure. Bad loans crept up to 0.59% of total loans from 0.55%. That’s higher than the other banks, but a big improvement over 0.72% two years ago.
CIBC’s improving prospects let it increase its quarterly dividend by 10%, from $0.70 to $0.77. It now yields 3.2%. Its dividend payout ratio is just 34%, well below CIBC’s target range of 40% to 50%, so it will probably increase the dividend again in the next few months.
The stock now trades at 11.8 times its forecast 2007 profit of $8.08 a share. It is cheaper than the other banks due to fears about its exposure to the troubled U.S. subprime mortgage business, but CIBC says those fears are exaggerated.
CIBC is a buy.
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