December 1, 2016 / 11:12 AM / a year ago

CIBC shares gain on profit beat, dividend hike

A Canadian Imperial Bank of Commerce (CIBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie

(Reuters) - Canadian Imperial Bank of Commerce on Thursday reported a better-than-expected quarterly profit, lifted its dividend and revealed a stronger capital position than rival lenders, sending its shares higher.

Canada’s fifth-biggest lender said its earnings per share, excluding one-off items, rose to C$2.60 from C$2.36 the year before, well ahead of the average analyst forecast of C$2.48 according to Thomson Reuters I/B/E/S.

The bank raised its dividend to C$1.24 from C$1.21 last year and revealed its core tier 1 ratio, a key measure of its financial strength, had risen to 11.3 percent, the highest of any major Canadian bank.

CIBC shares were up 2.8 percent in mid-morning trade.

“We would expect CIBC to be rewarded for the strong beat and the incremental dividend increase, as well as its likely peer-leading capital ratio,” said Barclays analyst John Aiken.

Despite the outperformance, the bank said it had cut its target for return on equity (RoE), a key measure of how well it uses shareholder capital to earn profits, to 15 percent from 18 to 20 percent before, citing the impact of low interest rates and regulatory changes. Larger rival Royal Bank of Canada lowered its RoE target yesterday.

CIBC has been expanding in the United States to help offset slow growth in its domestic market and said in June it would buy Chicago-based PrivateBancorp in a $3.8 billion cash-and-share deal, its biggest ever acquisition.

Chief Executive Victor Dodig said he was confident the deal would be approved by PrivateBancorp shareholders in a Dec.8 vote. Proxy advisory firms Glass Lewis and Egan-Jones on Thursday recommended PrivateBancorp’s shareholders vote in favor of the sale to CIBC but ISS has recommended PrivateBancorp shareholders vote against it.

“I think shareholders of PrivateBancorp and the PrivateBancorp management team feel very good about the transaction we’ve put forward,” he said.

Chief Financial Officer Kevin Glass said CIBC’s core tier 1 capital would fall to around 10 percent after the deal and the bank would then look to bring it back up to around 10.5 percent.

CIBC took a restructuring charge of C$134 million during the quarter, primarily due to the cost of staff severance payments. It said last year it would cut around 1 percent of its 44,500-person workforce. Banks around the world are cutting branches and staff and investing in technology as more customers bank online.

Additional reporting by Anet Josline Pinto in Bengaluru; Editing by Anil D'Silva and Meredith Mazzilli

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