CIBC profit beats forecasts and bank cuts workforce 5%

(Reuters) - Canadian Imperial Bank of Commerce CM.TO reported better-than-expected quarterly profit on Wednesday, the latest domestic bank to exceed estimates thanks to a boost from its capital markets business despite sluggish performance in some other areas.

FILE PHOTO: The Canadian Imperial Bank of Commerce (CIBC) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie

CIBC also recorded an employee severance charge of C$339 million ($255.16 million), as it cut 5% of its workforce, or about 2,250 employees. The move is expected to save the bank about C$260 million a year, executives said on an analyst call.

CIBC is the fourth of Canada’s six biggest lenders to have reported better earnings than expected for the three months ended Jan. 31, after the worst year for profit growth since the financial crisis in fiscal 2019.

But Canada’s fifth-largest lender, which has underperformed peers over the past year, is still seeing expense growth outpace revenue expansion. The bank’s mortgages in Canada also fell during the quarter, despite its efforts to catch up to rivals it has lagged over the past few years.

CIBC shares rose 0.2% to C$106.26 in early trading in Toronto, broadly in line with the Toronto stock benchmark .GSPTSE.

“A better result for CM to start the year,” Credit Suisse analysts wrote in a note. “Although we remain concerned about the continued underperformance in domestic residential mortgage growth, while the sizable restructuring charge, in our view, significantly lowers this quarter’s earnings quality.”

CIBC also benefited from a nearly 23% decline in loan-loss provisions, contributed to largely by a drop in provisions in its capital markets unit, where net income surged 63%.

Excluding items, the bank earned C$3.24 per share, beating analyst expectations for C$3.00 per share. Still, net income of C$2.63 a share, which included the impact of the restructuring charge, missed estimates based on Refinitiv IBES data.

CIBC flagged layoffs late last month to aid its efforts to cut costs and become more efficient.

The savings from the cuts are sufficient to drive revenue and earnings growth in the coming years in a stable market, Chief Executive Officer Victor Dodig said on the call on Wednesday.

“That’s why we’ve done this, and we don’t anticipate doing this going forward,” he said.

The bank will still see expense growth of 4% to 5% this year, executives said, about double the rate of its rivals.

CIBC also announced a raft of senior executive changes, including a new head of personal and business banking and a new chief risk officer.

Reporting by C Nivedita in Bengaluru and Nichola Saminather in Toronto; Editing by Devika Syamnath, Bernadette Baum and David Gregorio