CIBC expects new mortgages to halve in second half as rules bite

TORONTO (Reuters) - Canadian Imperial Bank of Commerce CM.TO expects the number of new mortgages it grants to halve in the second half of the year due to stricter lending rules, it said on Wednesday.

FILE PHOTO: The Canadian Imperial Bank of Commerce (CIBC) logo is seen outside their Bay Street headquarters in Toronto, Ontario, Canada March 16, 2017. Picture taken March 16, 2017. REUTERS/Chris Helgren

Canada introduced new regulations in January, requiring borrowers taking out uninsured mortgages to be stress-tested to determine their ability to make repayments at a rate 200 basis points above their contracted mortgage.

The measures were part of moves to cool rampant housing markets in Toronto and Vancouver and CIBC’s Canadian retail banking head Christina Kramer said they were having an impact on sales of mortgages.

“We expect there to be an origination decline in the 50 percent range relative to the same period last year,” Kramer said on a conference call. “A year ago, two-thirds of our revenue would be related to our mortgage business and today that’s about a quarter.”

The bank’s residential mortgage book had been growing faster than those of its rivals, although the pace of growth has been slowing since last summer.

Kramer said she anticipated the bank’s overall mortgage book would still grow in the “lower single digits” during the second half, compared with 7 percent in the latest quarter and 9 percent in the previous quarter.

Shares in CIBC were down 1.5 percent at 1030 ET.

“The performance looked solid but we suspect that investors will continue to focus on the negatives,” said Cormark Securities analyst Meny Grauman.

In an interview, Chief Financial Officer Kevin Glass said the overall housing market had slowed quicker than anticipated but growth in other parts of the business was making up for it.

“Our cards are doing better. Some of our other unsecured lending has improved, deposits have increased quite significantly and rising interest rates are making a big difference,” he said.

CIBC reported second-quarter earnings that were ahead of market expectations, helped by expansion in the United States where it acquired Chicago-based PrivateBancorp for $5 billion last June in a deal designed to reduce its reliance on its domestic market.

The bank reported earnings per share, excluding one-off items, of C$2.95, compared with C$2.64 a year earlier. Analysts had on average forecast earnings of C$2.80 per share, Thomson Reuters I/B/E/S data showed.

Glass said CIBC could reconsider a stock market listing of its FirstCaribbean business in New York if market conditions improve, having abandoned a planned listing in April.

(This version of the story refiles to fix typographical error in 3rd paragraph.)

Reporting by Matt Scuffham; Editing by Jason Neely, Mark Potter and Susan Thomas