(Adds analyst comment, retail segment details, updates share price)
By Lynne Olver
TORONTO, Aug 27 (Reuters) - Canadian Imperial Bank of Commerce CM.TO reported lower than expected charges on structured-credit investments as it booked its first profit in three quarters on Wednesday, giving its shares a hefty lift.
Canada’s fifth-biggest bank reported a 91 percent drop in third-quarter profit, as it was stung by further losses on structured credit investments and hedges related to the U.S. residential mortgage market.
But the capital-market charges of C$885 million ($845 million) “should relieve much of the near-term concerns regarding its balance sheet,” said Dundee Securities analyst John Aiken, who upgraded his rating on CIBC stock to “neutral” from “sell.”
The charges were at the low end of analysts’ estimates of C$750 million to more than C$2 billion.
“The fact that it wasn’t a billion or billion-half writedown was quite encouraging,” said Rick Hutcheon, president of RKH Investments.
CIBC shares climbed as high as C$60.75, up 6.5 percent, on the Toronto Stock Exchange on Wednesday morning, with shares of other Canadian banks rising to a lesser extent.
The bank said it earned C$71 million ($68 million), or 11 Canadian cents a share, in the three months to July 31, down from a profit of C$835 million, or C$2.31 a share, a year earlier.
This was a significant swing from the previous quarter, when the bank lost C$1.1 billion due to big capital-markets charges.
Aiken said that excluding various items, the bank’s “core” earnings were about C$1.63 a share, below the C$1.75 expected by analysts, according to Reuters Estimates.
“The bulk of the miss on our numbers stems from higher than anticipated provisions for credit losses, related to higher losses in the bank’s credit card portfolio,” Aiken wrote.
“This is troubling and could indicate additional pressure in future quarters,” he added.
CIBC said market conditions also hurt performance at its wholesale and retail brokerage operations.
Net income slipped 4 percent to C$572 million at CIBC Retail Markets on lower revenue and higher loan losses.
Those disappointing results raise questions about the bank’s growth prospects, said Craig Fehr, an analyst at Edward Jones.
“Revenues (in retail banking) were actually down for the quarter, which I was disappointed in, because we saw fairly positive results out of Bank of Montreal yesterday and pretty healthy results out of Bank of Nova Scotia,” Fehr said.
In his view, any “meaningful” rise in CIBC shares will have to be driven by outperformance in its retail businesses.
“We’re not exactly seeing that,” Fehr said.
“They basically spend a lot of their time putting out these fires in the capital markets business, and it’s really distracting from their ability to establish and foster a long-term growth engine.”
With the latest charges, CIBC has taken about C$7.5 billion in writedowns for U.S. structured finance exposures in the past five quarters, by far the greatest wallop from the credit crunch among Canadian banks.
As of Tuesday’s close, CIBC stock was down 45 percent from its 52-week high of C$103.64, set last October. ($1=$1.05 Canadian) (Additional reporting by Jennifer Kwan; editing by Rob Wilson)