CIBC's profits beat forecasts, driving shares higher as challenges in US commercial real estate subside
Canadian Imperial Bank of Commerce (CIBC) experienced a significant surge in its shares, reaching their highest level in over two years.
The increase came after the bank announced quarterly profits that exceeded analysts’ expectations, as reported by BNN Bloomberg.
The bank reported that its challenges with US commercial real estate, particularly within its $3bn portfolio, have largely subsided. CIBC had faced difficulties due to the declining US office market, but it now believes that the “majority of challenges” are behind it and has reduced its exposure accordingly.
Frank Guse, head of CIBC’s risk management, expressed cautious optimism during a call with analysts. He stated, “We have put the worst behind us, but we do not think that the stress we have seen in the US office market as a market overall is over yet.”
Guse emphasized that while large losses similar to those previously experienced are not expected to recur, there could still be some additional losses in the future.
For the fiscal third quarter ending July 31, CIBC reported earnings of $1.93 per share, surpassing the forecasted $1.74.
The bank also allocated $483m for credit loss provisions, which was lower than the $551m anticipated by analysts in a Bloomberg survey. This marked CIBC’s best performance in credit loss provisions in over a year.
CIBC’s share price climbed by as much as 6.4 percent to $78.22, the highest since March 2022, and showed a 5 percent increase at 10:40 am in Toronto. Despite the positive results, Guse cautioned that the strong performance in US credit might not represent a “new normal.”
He indicated that while the rate of credit issues could rise slightly, significant increases are not expected. The bank also noted that while watchlist loans remain high, the number of defaults is expected to decline significantly moving forward.
In the Canadian personal and business banking segment, CIBC saw a 26 percent profit increase, reaching $628m. This growth was driven by wider net interest margins, higher balances in personal loans, mortgages, and credit cards, and reduced credit loss provisions.
The US commercial banking segment posted the largest percentage gain, with profits jumping to $215m, nearly tripling the figure from the previous year.
Jefferies analyst John Aiken highlighted that provisions related to commercial real estate impairments were “largely immaterial” for the first time in 18 months.
However, CIBC’s capital markets division saw a decline, with net income dropping more than 20 percent to $388m. As the last of the six largest Canadian banks to report earnings, CIBC was one of three that surpassed consensus expectations.
The positive credit trends at CIBC and Royal Bank of Canada contrasted with the performance of Bank of Montreal, which fell short of estimates and received multiple downgrades due to concerns over its commercial loan portfolio.
